Saylor BUS105 - Managerial Accounting (SAYA-0009) Exam

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We are asked to calculate:

Cost per equivalent unit for direct labor

Direct labor cost assigned to ending work in process (WIP) inventory

Step 1: Determine the cost per equivalent unit for direct labor:

Cost per equivalent unit = Total Direct Labor Cost / Total Equivalent Units for Direct Labor

= $11,900 / 850

= $14 per equivalent unit

Step 2: Determine the equivalent units of direct labor in ending WIP inventory:

From the table:

Ending WIP Inventory = 600 physical units

Equivalent Units for Direct Labor = 500 units

Step 3: Compute the direct labor cost assigned to ending WIP:

= Equivalent Units in Ending WIP × Cost per Equivalent Unit

= 500 × $14

= $7,000

However, this does not match the answer in Option B, which says $8,400. Let’s double-check the correct equivalent units:

Wait! The total equivalent units for Direct Labor is 850. Of these, 350 are from the units completed and transferred, and the remaining 500 (ending WIP) is provided. So, the 500 figure is confirmed as correct for ending WIP.

So, cost assigned to ending WIP: 500 × $14 = $7,000

Correct answer should therefore be:

A. $14 per equivalent unit; $7,000 direct labor cost assigned to ending WIP inventory

(There appears to be an inconsistency in answer choices — Option A is actually correct based on accurate calculation.)

Therefore, Final Correct Answer: A

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The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a period, and it is calculated using the following formula:

Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory

Step 1: Identify the values:

Cost of Goods Sold (COGS) = $1,525,000

Beginning Inventory (Year 1 ending) = $300,000

Ending Inventory (Year 2) = $350,000

Step 2: Compute Average Inventory:

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

= ($300,000 + $350,000) ÷ 2 = $650,000 ÷ 2 = $325,000

Step 3: Compute Inventory Turnover Ratio:

Inventory Turnover = COGS ÷ Average Inventory

= $1,525,000 ÷ $325,000 ≈ 4.692 → Rounded to one decimal = 4.7

Therefore:

Answer: C

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In a process costing system, when overhead is applied to production (in this case to the Assembly Department), the journal entry is:

Dr. Work in Process (for the specific department)

Cr. Manufacturing Overhead (applied)

This entry reflects the fact that the company is allocating (applying) manufacturing overhead costs from the overhead pool into the Work in Process account for that department.

Let’s evaluate each choice:

A.

Dr. Manufacturing Overhead

Cr. Work in Process – Assembly

⟶Incorrect: This reverses the correct direction of cost flow. Manufacturing overhead is being incorrectly debited rather than credited.

B.

Dr. Work in Process – Assembly

Cr. Manufacturing Overhead

⟶Correct: This entry correctly applies overhead to WIP for the Assembly department.

C.

Dr. Work in Process – Assembly

Cr. Wages Payable

⟶Incorrect: This would be the correct entry for applying direct labor, not overhead.

D.

Dr. Work in Process – Wages Payable

Cr. Work in Process – Assembly

⟶Incorrect: This is not a standard entry and incorrectly references "Work in Process – Wages Payable."

Therefore, the only correct entry for applying $3,180 of manufacturing overhead to the assembly department is:

Answer: B

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Step 2: Calculate Differential Profit

However, notice that the result is negative $550, which matches answer A, not B. Let's verify the available choices:

A. A differential profit of ($550) — This means a loss of $550, which matches our calculation.

B. A differential profit of ($700) — This would mean a loss of $700.

C & D refer to differential contribution margin (which excludes fixed costs).

Since the differential profit is negative $550,the correct answer is A.

Internal audit reports related to internal controls are typically reviewed by senior management because they involve organization-wide compliance, governance, and financial integrity.

As per Saylor Academy BUS105 – Unit 13: Ethics and Corporate Governance:

“The chief financial officer (CFO) is responsible for financial planning, risk management, and ensuring proper internal controls. The CFO often reviews internal audit reports and communicates results to the board.”

A payroll clerk (A) and plant manager (B) would be responsible for their functional areas but would not be the main recipient of an internal audit committee report.

A managerial accountant (D) may be involved in preparing internal data but does not typically oversee internal control reporting.

Therefore:

Answer: C

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Wycliff Corporation usescost pools for assembly and shipping to calculate a predetermined overhead rate for each department. This means the company calculates separate overhead rates for different departments (in this case, assembly and shipping) rather than using a single rate for the entire plant or allocating overhead based on individual activities.

According to Saylor Direct Credit Courses in Managerial Accounting (BUS105),Departmental Overhead Rate Methodis defined as follows:

"When a company has more than one department that incurs manufacturing overhead costs, it may be more accurate to use a departmental overhead rate for each department. Each department establishes its own overhead rate by dividing the total overhead costs for that department by the total amount ofits allocation base (such as machine hours or direct labor hours)."

(Reference: Saylor Academy BUS105, Unit 3: How Is Job Costing Used to Track Production Costs? Section 3.4 “Departmental and Plantwide Overhead Rates”)

This isdifferentfrom:

Activity-Based Costing (A), which uses multiple cost pools based on different activities, not necessarily departments.

Plantwide Rate (C), which uses a single overhead rate for the entire plant.

Process Costing (D), which is used for mass production of similar products, not overhead allocation per department.

Wycliff’s system fits theDepartmentalmethod, as they allocate costs bydepartment(assembly and shipping) rather than by activity (activity-based) or across the whole plant (plantwide).

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To compute the total current period manufacturing costs, we use the formula:

Total Manufacturing Costs =

Direct Materials Used + Direct Labor + Manufacturing Overhead Applied

Let’s break it down step-by-step.

Step 1: Compute Direct Materials Used

Direct Materials Used =

Beginning Raw Materials Inventory + Raw Materials Purchases − Ending Raw Materials Inventory

= $9,000 + $150,000 − $5,000 = $154,000

Step 2: Add Direct Labor and Manufacturing Overhead

Direct Labor = $50,000

Manufacturing Overhead Applied = $400,000

Step 3: Compute Total Manufacturing Costs

Total Manufacturing Costs =

Direct Materials Used + Direct Labor + Manufacturing Overhead

= $154,000 + $50,000 + $400,000 = $604,000

Note:

Selling and General & Administrative expenses are period costs and are excluded from the Schedule of Cost of Goods Manufactured.

Beginning and ending work-in-process inventories are used to compute the total cost of goods manufactured, not the total current period manufacturing costs.

Therefore:

Answer: B. $604,000

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Cash collections and payments for purchases are cash inflows and outflows that must be captured in the Cash Budget. The Cash Budget is a critical component of the master budget and is used to estimate the cash position of the company at various points during the budgeting period. This includes timing of cash collections from sales (accounts receivable) and cash disbursements for purchases, wages, overhead, and other expenses.

As per Saylor Academy BUS105: Managerial Accounting, Unit 9 – How Do Managers Use Budgets?, Section 9.3: Preparing a Cash Budget:

“The cash budget shows the company's expected cash inflows and outflows over a period of time. This includes all cash collected from sales and all payments made for expenses, purchases of direct materials, and other disbursements.”

Therefore:

Option A (Cash budget) is correct.

Option B (Budgeted income statement) records revenues and expenses, not timing of actual cash flows.

Option C (Manufacturing overhead budget) focuses on estimating overhead costs but not cash flow.

Option D (Direct materials purchases budget) estimates how much material to buy but does not directly reflect actual payments.

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Cost behavior refers to how a cost will change as the level of business activity changes. According to managerial accounting principles, cost behavior is predictable and reliable only within a certain scope of activity levels. This scope is known as the "relevant range."

The relevant range is defined as:

“The range of activity over which cost behavior assumptions are valid. Within this range, fixed costs remain constant in total, and variable costs vary proportionately with activity.”

(Source: Saylor Academy, BUS105: Managerial Accounting – Unit 1.3: Cost Classifications for Predicting Cost Behavior)

This means that if production or activity remains within this range, fixed costs do not change, and variable costs change at a consistent rate per unit. However, if activity goes beyond or falls below this range, the cost behavior assumptions may no longer be accurate.

Let's examine the other options:

A. Free cash flow: This refers to the amount of cash a company has after capital expenditures. It has no direct relationship with the predictability of cost behavior.

C. The current ratio: This is a liquidity ratio measuring current assets against current liabilities. It also does not relate to cost behavior.

D. A contribution margin: While the contribution margin is used in analyzing profitability, it is a result of cost behavior analysis—not the range within which costs behave reliably.

Therefore, B. A relevant range is the correct and only option describing the range within which cost behavior patterns tend to be valid and reliable.

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