NORMAL COSTING

1. Work in process inventory of Virgie Corporation increased P11,500 from

the beginning to the end of November. Costs incurred during November
were P12,000 for materials used, P63,000 for direct labor, and P21,000
for overhead. Find cost of goods manufactured for November.
a. P 96,000
b. P 84,50
c. P107,500
d. P 73,000

Answer: B
Direct materials used P12,000
Direct labor 63,000
Applied factory overhead 21,000
Less: Increase in work in process inventory ( 11,500)
Cost of goods manufactured P84,500

2. In the Joanne Company, costs incurred during November were P15,000

for materials purchased, P40,000 for direct labor, and P50,000 for
overhead. Materials inventory decreased by P4,000. If cost of goods
manufactured in November was P99,000 and beginning work in process
inventory was P28,000, find ending work in process inventory.
a. P38,000
b. P34,000
c. P30,000
d. P18,000

Answer: A
Direct materials used:
Materials purchases P15,000
Add: Decrease in materials inventory 4,000 P 19,000
Direct labor 40,000
Applied factory overhead
50,000
Add: Work in process beginning 28,000
Total P137,000
Less: Cost of goods manufactured (
99,000)
Work in process ending inventory P
38,000

3. In the Faye Company, the cost of goods sold for November was P156,000,
finished goods inventory decreased by P13,000, and work in process
inventory increased by P9,000. Find the total manufacturing costs for
November.

1
a. P143,000
b. P134,000
c. P152,000
d. P160,000

Answer: C
Cost of goods sold P156,000
Less: Decrease in finished goods inventory ( 13,000
Add: Increase in work in process inventory 9,000
Manufacturing cost P152,000

4. The Pedro Outfitters makes Artic Warmsuits. The general manager has a
special board on his office wall where he writes key statistics. On the
board for March, he has written the following:

Production output 25,000 suits

Materials costs P50,000
Direct labor costs 2,000 hours at P10 per hour
Factory overhead P2 per outfit produced plus P40,000 per
month
Selling expenses P1 per outfit sold plus P50,000 per
month

He heard the sales manager brag about selling 20,000 suits this month.

What was the cost of goods sold per unit?

a. P6.40
b. P9.20
c. P5.80
d. P7.00

Answer: A
Direct materials P 50,000
Direct labor costs (2,000 hrs x 10) 20,000
Applied factory overhead Variable (2 x 25,000) 50,000
Fixed 40,000
Total cost of 25,000 suits P160,000

Cost of goods sold per unit = 160,000/25,000 = P6.40

5. The Paddle Shop, Inc., keeps accounting and cost records on a personal
computer. During the month of January, data were lost as a result of
errors made by a new operator. Fortunately, some data were retrieved
and are set forth as follows:

2
(a) The debit balance in the Payroll account was P130,000. This
balance included P20,000 in indirect labor that was charged to the
Factory Overhead account.
(b) The debit balance in the Factory Overhead account totaled
P166,000. This balance included the indirect labor amount in (a).
(c) Factory overhead is applied to the products at 150 percent of
direct labor cost.
(d) The Work in Process account showed a January 1 balance of
P91,000. Materials requisitioned and charged to Work in Process
during the period amounted to P98,000. The balance in Work in
Process on January 31, was P82,000.
(e) The Finished Goods balance at January 1 was P48,000.
(f) Cost of Goods Sold had a debit balance of P389,000. This amount
did not included underapplied or overapplied factory overhead.

Determine the cost of work completed and transferred to the finished

goods inventory for the month.
a. P382,000
b. P464,000
c. P383,000
d. P341,000

Answer: A
Work in process account balance, January 1 P 91,000
Add: Direct materials used 98,000
Direct labor (130,000 – 20,000) 110,000
Applied factory overhead (110,000 x 150%) 165,000
Less: Work in process balance, January 31
( 82,000)
Cost of goods completed and transferred to
finished goods inventory P382,000

6. The Gorilla Company manufactures small stuffed gorillas. The total

revenue is P590,000. The company incurred the following costs:
Materials P 52,000 (10% is indirect materials)
Labor 70,000 (12% is indirect labor)
Factory overhead 250,000 (including indirect materials
and Indirect labor)
General and administrative 147,000
expenses
Office salaries 48,000
Equipment purchased at end of 53,000
period (ignore depreciation)
Total P620,000

There were no units still in process at the end of the year, and 92% of the
goods produced during the year were sold.

3
Compute the correct net income during year.
a. P65,272
b. P35,680
c. P23,000
d. P52,760

Answer: A
Total revenue P590,000
Less: Cost of goods sold:
Direct materials (52,000 x 90%) P 46,800
Direct labor (70,000 x 88%) 61,600
Applied factory overhead 250,000
Total 358,400
X 92% 329,728
Gross profit 260,272
Less: General and administrative expense P147,000
Office salaries 48,000 195,000
Net income during the year P
65,272

7. Devoe Electronics Corporation incurred the following costs during 20x0.

The company sold all of its products manufactured during the year.

Direct materials P3,000,000

Direct labor 2,200,000
Manufacturing overhead
Utilities (primarily electricity) 140,000
Depreciation on plant and equipment 230,000
Insurance 160,000
Supervisory salaries 300,000
Property taxes 210,000
Selling costs
Advertising 195,000
Sales commission 90,000
Administrative costs
Salaries of top management and staff 372,000
Office supplies 40,000
Depreciation on building and equipment 80,000

During 20x0, the company operated at about half of its capacity, due to a
slowdown in the economy. Prospects for 20x1 are slightly better, with the
marketing manager forecasting a 20 percent growth in sales over the
20x0 level. Forecast the 20x1 manufacturing cost for Devoe Electronics
Corporation.
a. P7,308,000
b. P7,488,000
c. P7,458,000

4
d. P8,085,000

Answer: A
Direct materials costs (3,000,000 x 120%)
P3,600,000
Direct labor costs (2,200,000 x 120%) 2,640,000
Applied factory overhead
Utilities (140,000 x 120%)
168,000
Depreciation on plant and equipment 230,000
Insurance 160,000
Supervisory salaries 300,000
Property taxes 210,000
Total manufacturing costs for 20x1
P7,308,000

8. At the end of its fiscal year, December 31, Year 2, the following
information appeared on the financial statements of the ABC Company:
Cost of goods manufactured P405,000
Cost of raw materials used (all direct) 160,000
Factory overhead, 80% of direct labor 92,000
Work in process inventory – ending 48,000

Determine the work in process inventory on January 1.

a. P86,000
b. P10,000
c. P31,400
d. P127,400

Answer: A
Cost of goods manufactured P405,000
Add: Work in process, ending 48,000
Total cost placed in process P453,000
Less: Manufacturing costs:
Raw materials used P160,000
Direct labor (92,000/80%) 115,000
Factory overhead applied 92,000 367,000
Work in process, beginning P 86,000

9. The following data are available about the B Company:

20x7 20x8 20x9

Balances Balances Balances
Beginning materials inventory P100,000 ? P120,000
Ending materials inventory 150,000 ? 110,000
Beginning work in process 300,000 ? 180,000
inventory

5
Ending work in process 240,000 ? 210,000
inventory
Direct labor P200,000
Manufacturing overhead 400,000
Materials purchases 300,000

Find the cost of goods manufactured in 20x8.

a. P900,000
b. P930,000
c. P990,000
d. P980,000

Answer: C
Materials purchases P300,000
Add: Ending materials inventory 20x7 150,000
Less: Beginning materials inventory 20x9 ( 120,000)
Direct materials used P330,000
Direct labor 200,000
Applied factory overhead
400,000
Manufacturing costs P930,000
Add: Ending work in process inventory 20x7
240,000
Less: Beginning work in process inventory 20x9 ( 180,000)
Cost of goods manufactured P990,000

Questions 10 through 12 are based on the following:

Jean Smith knows the following about the production process in her
plant:
Department 1: Prime costs are 40 percent of total manufacturing costs.
Direct labor is 25 percent of factory overhead costs.
Factory overhead is P600,000.

10. Find the total direct material costs.

a. P400,000
b. P250,000
c. P150,000
d. P1,000,000

Answer: B
Factory overhead P 600,000
Factory overhead rate to manufacturing
cost (100% -40%)  60%
Total manufacturing cost P1,000,000

Direct material costs (1,000,000 x 40%) – (600,000 x 25%) = P250,000

6
Department 2: Direct product costs are materials and direct labor.
Conversion costs are 300 percent of materials.
Indirect product costs are 50 percent of conversion
costs.
Total manufacturing costs are P600,000.

11. Find the direct labor costs.

a. P225,000
b. P150,000
c. P450,000
d. P300,000

Answer: A
Total manufacturing cost P600,000
Direct materials (600,000/400%) P150,000
Direct labor cost (600,000 – 150,000) x 50% P225,000

Department 3: Conversion costs are P100,000.

Prime costs are P100,000.
Materials purchases are P70,000.
Increase in materials inventory is P10,000.
Decrease in work in process inventory is P20,000.

12. Find the cost of goods manufactured.

a. P160,000
b. P180,000
c. P140,000
d. P200,000

Answer: B
Materials purchases P 70,000
Less: Increase in materials inventory ( 10,000)
Materials used P 60,000
Conversion costs 100,000
Manufacturing cost P160,000
Add: Decrease in work in process inventory 20,000
Cost of goods manufactured P180,000

Questions 13 through 17 are based on the following:

Find the missing values in the following manufacturing income statement.

20x7 20x8 20x9
Sales P ? P113,70 P ?
0
Cost of goods sold:
Direct materials inventory, 1/1 8,000 ? ?

7
+ Direct materials purchases ? 20,000 30,000
Direct materials available ? 26,000 ?
- Direct materials inventory, 12/31 ? ( 9,000) (12,300)
Direct materials used ? ? ?
Direct labor 20,000 23,500 ?
Manufacturing overhead 16,000 ? 24,000
Total manufacturing costs 53,000 ? 90,900
+ Work in process inventory, 1/1 12,000 18,000 ?
- Work in process inventory, 12/31 ? (16,300) ( 22,300
)
Cost of goods manufactured ? 63,500 84,900
+ Finished goods inventory, 1/1 ? ? ?
Goods available for sale 62,000 84,500 103,200
- Finished goods inventory, 12/31 ( 21,000 ? ?
)
Cost of goods sold ? ? 83,200
Gross profit P P ? P 46,800
49,000

13. Determine the total sales of 20x7.

a. P 0,000
b. P130,000
c. P113,700
d. P132,000

Answer: A
Cost of goods sold:
Goods available for sale P62,000
Less: Finished goods inventory, 12/31 ( 21,000) P41,000
Add: Gross profit
49,000
Total sales P90,000

14. Determine the direct material purchases for 20x7.

a. P20,000
b. P30,000
c. P15,000
d. P23,000

Answer: C
Total manufacturing costs
P53,000
Less: Manufacturing overhead P16,000
Direct labor 20,000
( 36,000)
Direct materials used P17,000
Add: Direct materials, 12/31:
8
Direct materials available 20x8 P26,000
Less: Direct material purchases 20x8 ( 20,000) 6,000
Direct materials available 20x7 P23,000
Less: Direct materials inventory, 1/1 20x7
( 8,000)
Direct materials purchases 20x7
P15,000

15. Determine the manufacturing overhead for 20x8.

a. P61,800
b. P21,300
c. P16,000
d. P24,000

Answer: B

Cost of goods manufactured 20x8 P63,500

Add: Work in process inventory, 12/31/20x8 16,300
Less: Work in process inventory, 1/1/20x8 ( 18,000)
Manufacturing costs 20x8 P61,800
Less: Direct labor ( 23,500)
Direct materials used:
Direct materials available P26,000
Less: Direct materials inventory, 12/31/20x8 ( 9,000) ( 17,000)
Manufacturing overhead for 20x8 P21,300

16. Determine the gross profit for 20x8.

a. P66,200
b. P49,000
c. P46,800
d. P47,500

Answer: D
Sales 20x8 P113,700
Cost of goods sold 20x8:
Goods available for sale 20x8 P84,500
Less: Finished goods inventory,
1/1/20x9:
Goods available for sale 20x9 P103,200
Less: Cost of goods
manufactured 20x9 ( 84,900) 18,300 66,200
Gross profit 20x8 P 47,500

17. Determine the direct labor cost for 20x9.

a. P40,200
b. P26,700

9
c. P23,500
d. P20,000

Answer: A
Total manufacturing costs 20x9
P90,900
Less: Manufacturing overhead P24,000
Direct materials used:
Direct materials inventory, 12/31/20x8 P 9,000
Direct materials purchases 20x9 30,000
Less: Direct materials inventory,
12/31/20x9 (12,300) 26,700
( 50,700)
Direct labor cost for 20x9 P40,200

18. Davis Company applies overhead using direct labor cost. The following T-
accounts pertain to 20x8 operations:

Work in Process Factory Overhead

-------------------------------- ---------------------
(a) 10,000 70,000 60,000
(b) 50,000 120,000
© 20,000
(d) ?
(e) ?

(a) Beginning balance;

(b) Direct materials;
(c) Direct labor;
(d) Factory overhead;
(e) Ending balance

Compute the overhead rate that was used for 20x8.

a. 33-1/3%
b. 133-1/3%
c. 300%
d. 3%

Answer: C
Credit to factory overhead account = Applied factory overhead P60,000
Debit to work in process account letter c = Direct labor costs P20,000
Overhead rate (60,000/20,000) = 300%

19. The following data refer to Fresno Fashions Company for the year 20x2:

10
Sales revenue P950,000
Work in process inventory, 12/31/x2 30,000
Work in process inventory, 1/1/x2 40,000
Selling and administrative expenses 150,000
Income tax expense 90,000
Purchases of raw materials 180,000
Raw materials inventory, 12/31/x2 25,000
Raw materials inventory, 1/1/x2 40,000
Direct labor 200,000
Utilities: plant 40,000
Depreciation: plant and equipment 60,000
Finished goods inventory, 12/31/x2 50,000
Finished goods inventory, 1/1/x2 20,000
Indirect material 10,000
Indirect labor 15,000
Other manufacturing overhead 80,000

Determine the cost of goods manufactured for 20x2.

a. P610,000
b. P580,000
c. P595,000
d. P600,000

Answer: D
Purchases of raw materials P180,000
Add: Raw materials inventory, 1/1/x2 40,000
Less: Raw materials inventory, 12/31/x2
( 25,000)
Indirect material
( 10,000)
Direct materials used P185,000
Direct labor 200,000
Factory overhead:
Utilities: plant P40,000
Depreciation: plant and equipment 60,000
Indirect material 10,000
Indirect labor 15,000
Other manufacturing overhead 80,000 205,000
Total manufacturing cost P590,000
Add: Work in process inventory, 1/1/x2 40,000
Less: Work in process inventory, 12/31/x2
( 30,000)
Cost of goods manufactured P600,000

20. Marco Polo Map Company’s cost of goods sold for March 20x4 was
P345,000. March 31 work in process inventory was 90 percent of March 1
work in process inventory. Manufacturing overhead applied was 50
percent of direct-labor cost. Other information pertaining to the

11
company’s inventories and production for the month of March is as
follows:

Beginning inventories, March 1:

Raw material P 17,000
Work in process 40,000
Finished goods 102,000
Purchases of raw material during March 113,000
Ending inventories, March 31:
Raw material 26,000
Work in process ?
Finished goods 105,000

How much is direct labor cost?

a. P160,000
b. P 80,000
c. P344,000
d. P240,000

Answer: A
Cost of goods sold P345,000
Add: Finished goods, March 31 105,000
Less: Finished goods, March 1 ( 102,000)
Cost of goods manufactured P348,000
Add: Work in process, March 31 (90% x 40,000) 36,000
Less: Work in process, March 1 ( 40,000)
Manufacturing costs P344,000
Less: Direct materials used:
Raw material, March 1 P 17,000
Add: Purchases 113,000
Less: Raw materials, March 31 ( 26,000) 104,000
Conversion cost during March P240,000
Direct labor (240,000/150%) = P160,000

21. The estimated unit costs for CNR Inc., when it is operating at a production
and sales level of 12,000 units, are as follows:

Estimated
Cost Item Unit Cost
Direct materials P32
Direct labor 10
Variable factory overhead 15
Fixed factory overhead 6
Variable marketing 3
Fixed marketing 5

Compute the total cost that would be incurred during a month with a
production level of 11,500 units and a sales level of 9,500 units.
12
a. P800,500
b. P813,000
c. P816,000
d. P852,000

Answer: C

Production cost:
Direct materials (32 x 11,500 units) P368,000
Direct labor (10 x 11,500 units) 115,000
Variable factory overhead (15 x 11,500 units) 172,500
Fixed factory overhead (6 x 12,000 units) 72,000
Selling expenses:
Variable marketing (3 x 9,500 units) 28,500
Fixed marketing (5 x 12,000 units) 60,000
Total cost P816,000

22. Walker Company incurred P80,000 direct labor cost in 2002 and had the
following selected account balances at the beginning and end of 2002:
Finished goods January 1, P56,000; Work in process January 1, P24,000;
Materials January 1, P34,000; Finished goods December 31, P90,000;
Work in process December 31, P28,000; Materials December 31, P48,000.
The total cost of goods sold and actual factory overhead during the year
are P280,000 and P70,000, respectively.

Determine the total material purchases during the year.

a. P182,000
b. P162,000
c. P148,000
d. P144,000

Answer: A
Cost of goods sold P280,000
Add: Finished goods, December 31 90,000
Less: Finished goods, January 1 ( 56,000)
Cost of goods manufactured P314,000
Add: Work in process, December 31 28,000
Less: Work in process, January 1 ( 24,000)
Manufacturing costs P318,000
Less: Direct labor ( 80,000)
Factory overhead ( 70,000)
Direct materials used P168,000
Add: Materials, December 31 48,000
Less: Materials, January 1 ( 34,000)
Materials purchases P182,000

13
23. The general ledger of the Lino Company contained the following
accounts, among others, on January 1; Finished Goods, P150,000; Work in
Process, P300,000; Materials, P250,000. During January the following
transactions were completed:

(a) Materials were purchased on account at a cost of P135,000.

(b) Steel in the amount of P175,000 was issued from stores.
(c) Requisitions for indirect materials and supplies amounted to P18,000.
(d) The total payroll for January amounted to P270,000, including
marketing salaries of P50,000 and administrative salaries of P30,000.
Labor time tickets show that P170,000 of the labor cost was direct
labor. A payroll clearing account is used.
(e) Various indirect manufacturing costs totalling P25,080 were paid in
cash.
(f) Various indirect manufacturing costs totalling P85,000 were incurred
on account.
(g) Total factory overhead is charged to Work in Process.
(h) Cost of production completed in January totalled P601,000, and
finished goods on January 31, totalled P151,000.
(i) Customers to whom shipments were made during the month were
billed for P800,000.

Determine the work in process ending inventory.

a. P167,080
b. P192,080
c. P322,080
d. P187,080

Answer: B
Work in process, January 1 P300,000
Add: Steel issued (direct materials) 175,000
Direct labor 170,000
Factory overhead:
Indirect materials 18,000
Indirect labor (270,000 – 50,000
- 300,000 – 170,000) 20,000
Various indirect manufacturing overhead
(25,080 + 85,000) 110,080
Total cost placed in process P793,080
Less: Cost of production completed 601,000
Work in process ending inventory P192,080

Items 24 and 25 are based on the following:

For the period just ended, the gross margin of Richard Company was
P1,920,000; the cost of goods manufactured was P6,800,000; the work in
process inventory increased by P200,000 and finished goods ending inventories
14
increased by P200,000 during the year, but the materials inventories decreased
by P60,000.

24. Sales amounted to

a. P8,720,000
b. P8,520,000
c. P8,680,000
d. P8,380,000

Answer: B
Cost of goods sold
Cost of goods manufactured P6,800,000
Less: Increase in finished
goods inventory 200,000
P6,600,000
Add: Gross margin 1,920,000
Sales P8,520,000

25. Assuming that factory overhead is applied to production at 150% of direct

labor cost but only 45% of materials cost, how much is the total factory
overhead applied to production?
a. P1,200,000
b. P1,800,000
c. P1,300,000
d. P1,500,000

Answer: B

Factory overhead is 150% of direct labor and only 45% of direct materials
costs,
Therefore, by ratio and proportion, if factory overhead is 45% of direct
materials,
Then direct materials must be 100% and direct labor must be 30%.
Cost of goods manufactured P6,800,000
Add: Increase in work in process inventory 200,000
Manufacturing cost P7,000,000
Factory overhead applied (7,000,000/175% x 45%) P1,800,000

26. Pedro Manufacturing Corp. shows the following cost pertaining to Juan’s
order.
Direct materials cost P4,200
Direct labor hours 300
Direct labor rate P8
Factory overhead rate P15
Machine hours 200

15
How much is the total manufacturing cost of Juan’s order?
a. P 9,600
b. P10,300
c. P11,100
d. P 8,800

Answer: A
Direct materials cost P4,200
Direct labor cost (300 x 8) 2,400
Applied factory overhead (15 x 200 hrs) 3,000
Manufacturing cost P9,600

27. The following data summarizes in part the results of operations for x5 of
Bert Company.

Of the total cost of goods manufactured for x5, 38% was for materials
used, 30% for direct labor, and 32% for manufacturing overhead.

During x5, the company paid for 90% of the materials purchased,
leaving P293,000 of unpaid invoices for materials at year end. The
company commenced x5 operations with a materials inventory of
P421,000. All materials were purchased f.o.b. company’s plant.

The company disbursed P2,101,500 for direct labor during x5. As of Dec.
31, x5, the accrued liability for direct labor amounted to P144,000, which
was twice as much as last year’s accrual.

The inventory of finished goods on December 31, x5, was 10% of the
cost of the units finished during the year, and goods in process on that
date were one-half the finished goods inventory. This year’s finished goods
inventory was 150% of last year’s. There are no goods in process last
year.

The manufacturing overhead, except for depreciation of factory buildings

and equipment, is detailed below:
Indirect labor P 672,000
Heat, light, and power 226,200
Maintenance and repairs 488,300
Insurance – factory 18,100
Property taxes 64,400
Factory payroll taxes 97,000
Miscellaneous factory costs 276,400
P1,842,400
How much is the cost of sales during x5?
a. P7,245,000
b. P6,900,000
c. P6,670,000

16
d. P5,757,500

Answer: C
Direct labor disbursed
P2,101,500
Add: Accrued labor, December 31, x5
144,000
Less: Accrued labor, January 1, x5 ( 72,000)
Direct labor cost P2,173,500
Direct labor rate to manufacturing cost 
30%
Manufacturing cost P7,245,000

If finished goods inventory ending are 10% of completed units and work in
process inventory ending are one-half of the finished goods inventory, the
manufacturing cost must be 105%.

Cost of goods manufactured (7,245,000/105%) P6,900,000

Add: Finished goods inventory beginning
(6,900,000 x 10%)/150% 460,000
Less: Finished goods inventory ending
(6,900,00 x 10%) ( 690,000)
Cost of sales P6,670,000
28. The selling expenses of D and R, Inc. for x8 are 10% of sales. General
expenses, excluding doubtful accounts, are 25% of cost of sales but only
15% of sales. Doubtful accounts are 2% of sales. The beginning inventory
was P62,000 and it decreased by 25% during the year. Income for the
year before income taxes is P57,200. How much is cost of sales during
x8?
a. P264,000
b. P312,000
c. P228,800
d. P176,000

Answer: A
If general expenses excluding bad debts are 25% of cost of sales but
only 15% of sales, then
General expenses must be:
25% of COS = 15% of sales
25% of COS = 15% of 100%
Cost of sales = 15%/25%
Cost of sales = 60%
Net income P 57,200
Net income rate
Sales 100%
Less: Cost of sales 60%
Selling expenses 10%
General expenses 15%
17
Doubtful accounts 2%  13%
Sales P440,000
Cost of sales (440,000 x 60%) = P264,000

29. X Manufacturing produce a product that sells for P390 and contain the
following costs: Direct materials, 30%, Direct labor, 30%, Applied Factory
Overhead, 40%.
The company anticipates an increase in the production costs next year,
due to an increase in direct materials costs by 10% and factory overhead
by 15%. Because of these increases the present profit will decrease by
30%.
How much must be the new selling price for the company to earn the
same amount of gross profit?
a. P417
b. P425
c. P450
d. P475

Answer: A
Cost of sales:
Direct materials 30% x 10% = 3%
Direct labor 30%
Applied factory overhead 40% x 15% = 6%
100% 9%

Increase in cost by 9% will decrease gross profit by 30%, therefore

Gross profit must be = 9%/30% = 30%.
Therefore, cost of sales before the increase in cost must be = 390/130% =
P300.
Gross profit before the increase in cost must be 300 X 30% = P90.
New selling price = 300 x 109% + 90 = P417

30. The B Company provides the following data for 20x2:

Dec. 31, 20x1 Dec. 31, 20x2

Inventories:
Raw materials * P12,000 P 13,500
Work in process 15,100 17,600
Finished goods 19,500
21,200
Operating data:
Cost of goods manufactured 151,700
Direct labor cost
50,000
Factory overhead cost (utilities only) 62,500
Indirect materials cost 5,000
* Consisting of both direct and indirect materials.

18
The cost of materials purchases for 20x2:
a. P43,200
b. P38,200
c. P36,700
d. P33,200

Answer: A
Cost of goods manufactured P151,700
Add: Work in process, December 31, 20x2 17,600
Less: Work in process, December 31, 20x1
( 15,100)
Manufacturing cost P154,200
Less: Direct labor cost ( 50,000)
Applied factory overhead (62,500 + 5,000)
( 67,500)
Direct materials used P 36,700
Add: Raw materials, December 31, 20x2 13,500
Indirect materials used 5,000
Less: Raw materials, December 31, 20x1
( 12,000)
Raw materials purchases P 43,200

19
JOB ORDER COSTING

31. Amy prints brochures for clients and uses job costing. She applies her
overhead costs to jobs each month by adding 20 percent to prime costs.
In February, she had the following job activity:
Beginning Materials Direct Labor
Job Inventory Added
Added
115 P25,000 P10,000
116 P20,000 20,000
117 20,000 10,000

Job 117 was incomplete at the end of February.

Determine the cost of jobs completed in February.
a. P75,000
b. P85,000
c. P90,000
d. 126,000

Answer: B
Cost of Jobs completed in February
Job 115: Beginning inventory cost P25,000
Direct labor added 10,000
Factory overhead applied
(10,000 x 20%) 2,000
P37,000
Job 116: Materials added P20,000
Direct labor added 20,000
Factory overhead applied
(40,000 x 20%) 8,000
48,000
Total P85,000

Questions 32 and 33 are based on the following:

Valport Company, a manufacturer of fiber optic communications equipment,

uses a job-order costing system. Since the production process is heavily
automated, manufacturing overhead is applied on the basis of machine hours
using a predetermined overhead rate. The current annual rate of P15 per
machine hour is based on budgeted manufacturing overhead costs of
P1,200,000 and a budgeted activity level of 80,000 machine hours. Operations
for year 20x9 have been completed, and all of the accounting entries have been
made for the year except the application of manufacturing overhead to the jobs
worked on during December, the transfer of costs from Work in Process to
Finished Goods for the jobs completed in December, and the transfer of costs
from Finished Goods to Cost of Goods Sold for the jobs that have been sold
during December. Summarized data as of November 30, 20x9 and for December
20
20x9 are presented in the following table. Jobs T11-007, N11-013, and N11-015
were completed during December. All completed jobs except Job N11-013 have
been turned over to customers by the close of business on December 31, 20x9.
Work in Process December 20x9 Activity
Balance Direct Direct Machine
Job No. 11/30/x9 Material Labor Hours
T11-007 P87,000 P 1,500 P 4,500
300
N11-013 55,000 4,000 12,000
1,000
N11-015 -0- 25,600 26,700
1,400
D12-002 -0- 37,900 20,000
2,500
D12-003 -0- 26,000 16,800
800
Total P142,000 P95,000 P80,000
6,000

Activity through December 20x9

Operating Activity 11/30/x9 Activity
Actual manufacturing overhead:
Indirect material P125,000 P 9,000
Indirect labor 345,000 30,000
Utilities 245,000 22,000
Depreciation 385,000 35,000
Total overhead P1,100,000 P96,000

Other items:
Raw material purchases * P965,000 P98,000
Direct-labor costs P845,000 P80,000
Machine hours 73,000 6,000

Account Balances at Beginning of Year: 1/1/x9

Raw material inventory* P105,000
Work in process inventory 60,000
Finished goods inventory 125,000
* Raw material purchases and raw material inventory consist of both direct
and indirect materials. The balance of the Raw Materials Inventory account
as of December 31, 20x9 is P85,000.

32. Determine the amount by which the manufacturing overhead is

overapplied or underapplied as of December 31, 20x9.
a. P11,000 underapplied.
b. P11,000 overapplied
c. P6,000 underapplied.
d. P6,000 overapplied.

21
Answer: A
Actual overhead for 20x9:
for 11 months of 20x9 P1,100,000
for December 20x9 96,000 P1,196,000
Applied factory overhead
(15 x {73,000 + 6,000}) 1,185,000
Underapplied overhead P 11,000

33. Determine the balance in Valport Company’s Finished Goods Inventory

account on December 31, 20x9.
a. P86,000
b. P31,000
c. P39,000
d. P211,000

Answer:
Cost of Job N11-013:
Cost last month P55,000
Cost this month:
Direct materials P 4,000
Direct labor 12,000
Applied factory overhead (15 x 1,000 hrs.) 15,000 31,000
Total P86,000

Questions 34 and 35 are based on the following:

During August, Altamont Machine Company started production orders 116, 117,
and 118. Order 115 was in process at the beginning of the month with direct
materials costs of P35,000, direct labor costs of P21,000, and applied factory
overhead of P25,200. During the month, direct materials were requisitioned, and
direct labor was identified with the orders as follows:

Order No. Direct materials Direct labor

115 - P26,000
116 P39,000 45,000
117 53,000 47,000
118 47,000 16,000

Factory overhead is applied to the orders at 120 percent of direct labor cost.
Orders 115, 116, and 117 were completed and sold in August. Order 118 was
incomplete on August 31.

34. Determine the cost of goods sold for the month of August
a. P233,600
b. P240,800
c. P432,800
d. P314,800

22
Answer: C
Cost of goods sold:
Job 115 Job 116 Job 117 Total
Cost last month P 81,200
Cost this month
Direct materials - P39,000 P 53,000
Direct labor 26,000 45,000 47,000
Factory overhead
120% of DL cost 31,200 54,000 56,400
P138,400 P138,000 P156,400 P432,800

35. Determine the work in process ending balance August 31.

a. P82,200
b. P66,200
c. P76,300
d. P72,400

Answer: A
Cost of Job 118:
Direct materials P47,000
Direct labor 16,000
Factory overhead (16,000 x 120%) 19,200
P82,200

36. You find that the cost records at Sabath Tool and Die Company have been
poorly maintained. Some information has been entered, but other
information is missing. Fortunately, the information given is correct.

The costs for Jobs 686, 687, and 688 are to be determined. The direct
materials cost is P5,280 for Job 686 and P7,150 for Job 687. The cost of
direct materials requisitioned during the month for all other jobs, except
Job 688, is P48,200. No jobs were in process at the beginning of the
month. The total cost of direct materials requisitioned during the month
was P69,130.

Labor is paid at a uniform rate of P100 an hour. Job 686 required 82 direct
labor hours, and Job 688 required 43 direct labor hours. A total of 760
direct labor hours were worked during the month. The direct labor cost of
all other jobs, with the exception of the three jobs being considered, was
P58,500.

Two machine hours are used for each direct labor hour. Overhead is
applied at a rate of P40 per machine hour. The actual overhead cost for
the month was P63,200. Jobs 686, 687, and 688 were completed during
the month.

Determine the costs of goods manufactured during the month.

23
a. P44,820
b. P48,710
c. P63,190
d. P64,860

Answer: D

Job 686 Job 687 Job 688 Total

Direct materials P 5,280 P 7,150
P69,130 – P48,200 P20,930
Direct labor
100 x 82 DLH 8,200
(760 – 585 – 82 – 43) x 100) 5,000
100 x 43 4,300
Factory overhead:
82 x 2 x 40 6,560
50 x 2 x 40 4,000
43 x 2 x 40 3,440
Total P20,040 P16,150 P 28,670
P64,860

37. During 20x8, Danzi Company purchased materials costing P152,600.

Materials requisitioned for jobs cost P98,000, and indirect materials
costing P42,000 were charged to Factory Overhead. Factory payrolls were
P212,000 with payroll taxes deducted of P60,000. Indirect labor of
P71,000 included in the payrolls was charged to Factory Overhead. All
other labor was direct labor charged to the jobs. Factory overhead was
applied to the jobs at the rate of P8 per machine hour. During the year,
the company operated at 45,000 machine hours and incurred factory
overhead costs of P259,000 (in addition to the indirect materials and
indirect labor previously stated). Deprecation of P47,000 was included in
the P259,000 of factory overhead costs.

Product costing P465,000 were completed during the year, and the cost of
goods sold was P480,000. At the beginning of the year, Danzi had the
following balances:
Materials P27,000;
Work in Process P48,000;
finished Goods P34,000

Determine the cost of work in process ending inventory for 20x8.

a. P134,000
b. P182,000
c. P167,000
d. P194,000

24
Answer: B
Beginning work in process inventory P
48,000
Add: Production costs:
Direct materials costs P 98,000
Direct labor (212,000 – 71,000) 141,000
Applied factory overhead (8 x 45,000) 360,000 599,000
Total cost placed in process P647,000
Less: Completed products 465,000
Work in process ending inventory P182,000

38. The Solomon Company uses a job-costing system at its Dover, Delaware
plant. The plant has a Machining Department and a Finishing
Department. Its job-costing system has two direct-cost categories (direct
materials and direct manufacturing labor) and two manufacturing
overhead cost pools (the Machining department, allocated using actual
machine-hours and the Finishing Department, allocated using actual
labor cost). The 20x4 budget for the plant is as follows:

Machining Finishing
Department Department
Manufacturing overhead P10,000,000
P8,000,000
Direct manufacturing labor cost P 900,000 P4,000,000
Direct manufacturing labor-hours 30,000
160,000
Machine-hours 200,000 33,000

During the month of January, the cost record for Job 431 shows the
following:
Machining Finishing
Department Department
Direct material used P14,000 P3,000
Direct manufacturing labor cost P 600 P1,250
Direct manufacturing labor-hours 30 50
Machine-hours 130 10

Assuming that Job 431 consisted of 200 units of product, what is the unit
product cost of Job 431?
a. P139.25
b. P45
c. P105.50
d. P33.75

Answer: A
Direct material used (14,000 + 3,000) P17,000
Direct manufacturing labor cost (600 + 1,250) 1,850
25
Applied factory overhead:
Machining Dept. (10,000,000/200,000 x 130 hrs.) 6,500
Finishing Dept. (8,000,000/4,000,000 x 1,250) 2,500
Total P27,850
Cost per unit (27,850/200 units) = P139.25

39. In addition to the above problem, the balances at the end of 20x4 are as
follows:

Machining Finishing
Department Department
Manufacturing overhead incurred P11,200,000
P7,900,000
Direct manufacturing labor cost P 950,000 P4,100,000
Machine-hours 220,000 32,000

Compute the under- or overallocated manufacturing overhead for Dover

plant as a whole.
a. P200,000 underallocated
b. P300,000 overallocated.
c. P100,000 overallocated.
d. P500,000 overallocated.

Answer: C
Actual factory overhead:
Machining Department P11,200,000
Finishing Department 7,900,000 P19,100,000
Applied factory overhead:
Machining Department
(10,000,000/200,000 x 220,000) P11,000,000
Finishing Department
(8,000,000/4,000,000 x 4,100,000) 8,200,000
19,200,000
Overallocated factory overhead P
100,000

40. Safety First Parachute Company uses a job order cost system and has two
production departments, T and P. Budgeted information for the year is as
follows:
Department T Department P
Machine hours 500 25,000
Direct materials P400,000
P600,000
Direct labor 350,000 100,000
Factory overhead 455,000
300,000

26
Both Department T and Department P apply factory overhead to
production orders through the use of predetermined factory overhead
application rates, which are based upon the yearly budget. Department T
applies factory overhead on a direct labor cost basis while Department P
does so on a machine hours basis. Actual information relating to job 194
during the year was as follows:

Department T Department P Total

Machine hours 150 2,500 2,650
Direct materials
P18,000
Direct labor P11,000 P 4,500 P15,500
Factory overhead control P14,500 P24,600 P39,100

If Safety First Parachute Company contracted to sell Job 194 for P100,000,
and if estimated selling and administrative expenses are 5% of the selling
price, what is the estimated profit on job 194?
a. P17,200
b. P22,400
c. P28,600
d. P33,700
Answer: A
Selling price
P100,000
Cost of goods sold:
Direct materials cost P18,000
Direct labor cost (11,000 + 4,500) 15,500
Factory overhead:
Dept. T (455,000/350,000 x 11,000) 14,300
Dept. P (300,000/25,000 x 2,500) 30,000
77,800
Selling and administrative expenses
( 5% x 100,000)
5,000
Net profit P17,200

41. The following relates to Job No. 999, which is being carried out by DR to
meet customer’s order.

Department I Department 2
Direct materials consumed P 10,000 P6,000
Direct labor hours employed 800 400
Direct labor rate per hour 8 10
Production overhead per direct labor hour 8 8

Administrative and other overhead 20% of full production cost

Profit markup 25% of selling price

27
What is the selling price to the customer for Job 999?
a. P45,000
b. P55,200
c. P54,000
d. P57,600

Answer: D
Direct material costs (10,000 + 6,000) P16,000
Direct labor cost (800 x 8) + (400 x 10) 10,400
Applied factory overhead:
Department 1 (800 x 8) 6,400
Department 2 (400 x 8) 3,200
Total cost of sales P36,000
Add: Administrative and other overhead (20% x 36,000) 7,200
Total P43,200
Selling price = 43,200/75% = P57,600

42. Badong uses a job order cost system and applies factory overhead to
production orders on the basis of direct manufacturing labor cost. The
overhead rates for 20x6 are 200% for Department A and 50% for
Department B. Job 123, started and completed during 20x6, was charged
with the following costs:

Department__
A B
Direct materials P25,000 P
5,000
Direct manufacturing labor ? 30,000
Factory overhead 40,000
?

The total manufacturing costs associated with Job 123 should be

a. P135,000
b. P180,000
c. P195,000
d. P240,000

Answer: A
Direct materials (25,000 + 5,000) P30,000
Direct manufacturing labor
Department A (40,000/200%) 20,000
Department B 30,000
Factory overhead
Department A 40,000
Department B (30,000 x 50%) 15,000 P135,000

28
43. Under Pogi Co.’s job order costing system manufacturing overhead is
applied to work in process using a predetermined annual overhead rate.
During January 2001, Pogi’s transaction included the following:

Direct materials issued to production P 90,000

Indirect materials issued to production 8,000
Manufacturing overhead incurred 125,000
Manufacturing overhead applied 113,000
Direct labor costs 107,000

Pogi’s beginning work in process inventory is P20,000 greater than

ending work in process inventory. What was the cost of jobs completed in
January 2001?
a. P302,000
b. P310,000
c. P322,000
d. P330,000

Answer: D
Direct materials issued to production P 90,000
Direct labor costs 107,000
Applied factory overhead 113,000
Decrease in ending inventory 20,000
Cost of jobs completed in January P330,000

44. Basti Company uses a job order cost system. The following debits
(credits) appeared in Basti’s work in process account for the month of
April, 20x6:
April Description Amount
1 Balance P 4,000
30 Direct materials 24,000
30 Direct manufacturing labor 16,000
30 Factory overhead 12,800
30 To finished goods ( 48,000)

Basti applies overhead to production at a predetermined rate of 80% of

direct manufacturing labor costs. Job No. 5, the only job still in process on
April 30, 20x6, has been charged with direct manufacturing labor of
P2,000. What was the amount of direct materials charged to Job No. 5?
a. P3,000
b. P5,200
c. P8,800
d. P24,000

Answer: B
Beginning work in process inventory P 4,000

29
Add: Direct materials used 24,000
Direct labor cost 16,000
Factory overhead 12,800
Less: To finished goods ( 48,000)
Ending work in process inventory P 8,800
Less: Direct labor P 2,000
Factory overhead (2,000 x 80%) 1,600
3,600
Direct materials to work in process end P 5,200

45. J Co. employs the job order cost system. Data for the month just ended
are summarized below:

(a) Work in process, beginning P100,000

(b) Direct materials used for the month 200,000
(c) Direct labor costs for the month
160,000
(d) Factory overhead applied (set rate based on direct labor
120,000
(e) Goods completed and transferred to stock 501,800
(f) Ending work in process referred to
Job 105 charged with direct labor cost of P12,000
and Job 107 charged with overhead of P 9,600
The cost of direct materials charged to Jobs 105 and 107 was
a. P34,800
b. P16,800
c. P30,000
d. P36,000
Answer: A
Work in process, beginning P100,000
Direct materials used for the month 200,000
Direct labor cost for the month
160,000
Factory overhead applied 120,000
Less: Goods completed and transferred to stock
( 501,800)
Work in process, ending P 78,200
Less: Job 105 - Direct labor costs P12,000
Factory overhead (12,000 x 75%) 9,000 21,000
Job 107 - Direct labor costs (9,600/75%) P12,800
Factory overhead 9,600 22,400
Direct materials to work in process, end P 34,800

46. H Co. manufactures leather bags and uses the job order cost system. Its
work in process show:

Direct materials used P341,000

30
Direct labor incurred 324,500
Factory overhead 259,600
Transferred to finished goods 825,000

Two jobs are still in process, upon which direct materials of P70,400 have
been expended. Factory overhead is applied at a predetermined
percentage of direct labor cost. What is the (1) direct labor and (2) factory
overhead component on the jobs transferred to the finished goods?
a. (1) P308,000; (2) P246,400
b. (1) P310,500; (2) P248,400
c. (1) P324,500; (2) P259,600
d. (1) P341,000; (2) P272,800

Answer: A
Transferred to finished goods P825,000
Less: Direct materials to finished goods:
(341,000 – 70,400) 270,600
Conversion costs P554,400

Overhead rate in relation to direct labor cost = 259,600/324,500 = 80%

Direct labor cost = 554,400/180% = P308,000
Factory overhead cost = 308,000 x 80% = P246,400 A

47. Handy Manufacturing has accumulated the following information for Job
453:
 P37,000 of direct materials received on requisition 76.
 Eleven hours of direct labor were needed each day for 5 days. Labor
rate is P90.00 per hour. Any hours over 40 are considered overtime
and are charged at 1-1/2 times the normal labor rate to Job 453.
 Factory overhead is applied at 80% of direct labor cost.

This job will produce 25 units, size 4 crankshafts for AI’s Auto Supply
store. The goods were ordered on April 27 and work was begun on that
day. The job was completed on May 3 and was to be delivered on May 9.
The crankshafts were sold for P3,000 a piece.
Compute the cost of job 453.
a. P49,474
b. P50,419
c. P51,175
d. P48,502

Answer: D
Direct materials
P37,000
Direct labor cost:
11 hrs x 5 days x 90 per hr. P4,950
8 hrs. x 2 days x 90 per hr. 1,440 6,390

31
Factory overhead applied (6,390 x 80%) 5,112
P48,502

48. Danica Manufacturing Company uses job order costing system. Factory
overhead is applied to production at a predetermined rate of 150% of
direct labor cost. Any over- or underapplied factory overhead is closed to
the cost of goods sold account at the end of each month. Additional
information is available as follows:

(a) Job 101 was the only job in process at January 31, with
accumulated costs of direct materials, P4,000; direct labor, P2,000
and applied overhead of P3,000.
(b) Jobs 102, 103, and 104 were started during February.
(c) Direct materials requisitions for February totalled P26,000.
(d) Direct labor cost of P20,000 was incurred for February.
(e) Actual factory overhead was P32,000 for February.
(f) The only job still in process on February 28 was Job 104, with costs
of P2,800 for direct materials and P1,800 for direct labor.
(g) Jobs 101, 102 and 103 were sold in February.

The cost of goods sold for February was

a. P79,700
b. P75,700
c. P80,000
d. P77,700

Answer: A
Beginning work in process, Job 101 (4,000 + 2,000 + 3,000) P
9,000
Direct materials requisitioned
26,000
Direct labor cost incurred 20,000
Applied factory overhead (150% x 20,000) 30,000
Less: Ending work in process, Job 104
Direct materials P2,800
Direct labor 1,800
Factory overhead (150% x 1,800) 2,700
7,300
Cost of goods sold normal P77,700
Add: Underapplied factory overhead (32,000 – 30,000)
2,000
Cost of goods sold actual P79,700

49. The South Tools Corporation manufactures specialized precision tools for
the electronics industry. It receives various job orders. For the month of
April, it started work on two orders, East and West. The total materials
costs for both orders was estimated at P80,000 of which 60% applies to

32
East and 40% to West. Direct labor hours were estimated at 700 for East
and 400 for West. The labor rate amounted to P18 per hour. Variable
overhead varies at the rate of P10 per hour. By the end of April, 75% of
the required materials were issued to production amounted to P90,000.
Also, the two orders were all 50% completed with respect to labor and
overhead. Labor hours for the month were charged at 360 to East and
180 to West. Variable overhead equated to the hourly rate given. The
total actual cost for East order for the month is:
a. P64,080
b. P65,800
c. P52,350
d. P67,600

Answer: A
Direct materials (90,000 x 60%) P 54,000
Direct labor (360 x 18) 6,480
Applied variable overhead (360 x 10) 3,600 P64,080

50. E Manufacturing Co. uses the traditional job order cost system. When E
issues indirect materials of P223,750 to its production department, it
increases
a. work in process control
b. factory overhead applied
c. factory overhead control
d. stores control

Answer: C

Questions 51 and 52 are based on the following:

On January 1, there were two jobs in process at the Bert Printing Company.
Details of the jobs are:
Job No. Direct Materials Direct Labor
A–15 P8,700 P3,200
A–38 1,600 4,200

Materials inventory at January 1 totalled P46,000 and P5,800 in materials were

purchased during the month. A requisition for P800 in supplies was filled. On
January 1, finished goods inventory consisted of two jobs: Job No. A–07 costing of
P19,600 and Job No. A-21 with a cost of P7,900. Both these jobs were sold during
the month.
Also during January, Job Nos. A-15 and A-38 were completed. Completing Job
No. A-15 required additional P3,400 in direct labor and P1,500 in direct
materials. The completion costs for Job No. A-38 included P5,400 in direct
materials and P10,000 in direct labor.
Job No. A-40 was started during the period but was not finished. A total of
P15,700 of direct materials were brought from the storeroom during the period
33
and total direct labor costs during the month amounted to P20,400. Factory
overhead was applied at 150 percent of direct labor costs to all of the jobs.

51. Determine the cost of jobs completed in January.

a. P67,700
b. P68,500
c. P69,200
d. P66,900

Answer: C
Job A-15
Direct materials (8,700 + 1,500)
P10,200
Direct labor (3,200 + 3,400) 6,600
Applied factory overhead (6,600 x 150%) 9,900
P26,700
Job A-38
Direct materials (1,600 + 5,400) P
7,000
Direct labor (4,200 + 10,000) 14,200
Applied factory overhead (14,200 x 150%) 21,300
42,500
Total cost of jobs completed in January
P69,200

52. Determine the cost of work in process ending inventory in January.

a. P27,800
b. P28,600
c. P36,100
d. P26,300

Answer: D
Job A-40
Direct materials (15,700 – 1,500 – 5,400) P 8,800
Direct labor (20,400 – 3,400 – 10,000) 7,000
Applied factory overhead (7,000 x 150%) 10,500
Total cost of work in process ending inventory P26,300

Items 53 through 57 are based on the following:

M Manufacturing Company uses job order cost system. Its job cost sheets for the
month of August were as follows:
Job Job Job Job Job Job
410 411 412 413 414 415
34
Work in process, Aug. 1
Direct materials P1,800 P1,125
Direct labor 2,700 2,160
Applied factory 1,755 1,404
overhead
Finished goods, Aug. 1
Direct materials P13,50 P5,040
0
Direct labor 18,000 6,300
Applied overhead 11,700 4,095
Cost utilized in August
Direct materials P P P27,00 P2,600
8,190 9,900 0
Direct labor 10,800 12,600 31,500 5,400
Applied overhead 7,020 8,190 20,475

The company completed three jobs (Job Nos. 412, 413, and 414) during August.
The applied factory overhead rate 65% of direct labor cost is the same for each
job. Thus, overhead was added to the cost sheets of said jobs based on the
abovementioned rate. Actual factory overhead as at August 1, amounted to
P18,500. Actual overhead for the month of August totalled P40,500. The
statement of cost of goods manufactured for the month of August will show:

53. Total manufacturing cost of:

a. P147,185
b. P158,129
c. P148,490
d. P146,619

Answer: A
Direct materials (8,190 + 9,900 + 27,000 + 2,600) P 47,690
Direct labor (10,800 + 12,600 + 31,500 + 5,400) 60,300
Applied factory overhead (60,300 x 65%) 39,195
Total manufacturing cost P147,185

54. Beginning work in process of:

a. P58,635
b. P10,944
c. P69,579
d. P11,510

Answer: B
Job 412
Direct materials P1,800
Direct labor 2,700
Applied factory overhead 1,755 P6,255

35
Job 413
Direct materials P1,125
Direct labor 2,160
Applied factory overhead 1,404 4,689
Work in process, beginning P10,944

55. Ending work in process of:

a. P19,944
b. P58,635
c. P11,510
d. P69,579

Answer: C
Job 415
Direct materials P 2,600
Direct labor 5,400
Applied factory overhead (5,400 x 65%) 3,510
Cost of work in process ending inventory P11,510

56. Total cost of goods manufactured of:

a. P147,185
b. P158,129
c. P148,490
d. P146,619

Answer: D
Job 412
Direct materials (1,800 + 8,190) P 9,990
Direct labor (2,700 + 10,800) 13,500
Applied factory overhead (1,755 + 7,020) 8,775 P
32,265
Job 413
Direct materials (1,125 + 9,900) P11,025
Direct labor (2,160 + 12,600) 14,760
Applied factory overhead (1,404 + 8,190) 9,594
35,379

Job 414
Direct materials P27,000
Direct labor 31,500
Applied factory overhead 20,475
78,975
Cost of goods manufactured
P146,619

57. Using the above data, the over-or underapplied during August must be:
a. P1,305 underapplied

36
b. P1,854 overapplied
c. P851 underapplied
d. P16,646 underapplied

Answer: A
Actual overhead for the month of August P40,500
Applied factory overhead for August
Job 412 P 7,020
Job 413 8,190
Job 414 20,475
Job 415 (5,400 x 65%) 3,510 39,195
Underapplied factory overhead for August P 1,305

Questions 58 and 59 are based on the following:

Diane, the controller for St. Peter Company, is in the process of analysing the
overhead costs for November 20x7. She has gathered the following data for the
month.
 Labor
Direct-labor hours:
Job 77 3,500
Job 78 3,000
Job 79 2,000
Labor costs:
Direct-labor wages P 510,000
Indirect-labor wages (4,000 hours)
150,000
Supervisory salaries 60,000
 Material
Inventories, November 1
Raw materials and supplies P 105,000
Work in process (Job 77)
540,000
Finished goods 1,125,000
Purchases of raw material and supplies:
Raw material P1,350,000
Supplies (indirect material)
150,000
Direct material and supplies requisitioned for production:
Job 77 P 450,000
Job 78 375,000
Job 79 255,000
Supplies (indirect material)
120,000
Total P1,200,000
 Other
Building occupancy costs (heat, light, depreciation, etc.):

37
Factory facilities P
64,000
Sales offices 16,000
Administrative offices 10,000
Total P 90,000
Production equipment costs:
Power P 41,000
Repairs and maintenance 15,000
Depreciation 15,000
Other 10,000
Total P 81,000

The firm’s job-order system uses direct-labor hours as the cost driver for
overhead application. In December 20x6, Diane had prepared the following
budget for direct labor and manufacturing overhead costs for the year 20x7. The
plant is capable of operating at 150,000 direct-labor hours per year. However,
Diane estimates that the normal usage is 120,000 hours in a typical year.
Manufacturing Overhead
Direct-Labor Hours Variable Fixed
100,000 P3,250,000 P2,160,000
120,000 P3,900,000 P2,160,000
140,000 P4,550,000 P2,160,000

During November the following jobs were completed:

Job 77 Small animal puppets
Job 78 Large dinosaur puppets.

58. Calculate the total cost of job 77.

a. P1,200,000
b. P1,376,750
c. P1,364,150
d. P836,750

Answer: B
Work in process, November 1 Job 77 P 540,000
Add: Cost this month:
Direct materials used 450,000
Direct labor (510,000/8,500 x 3,500 hrs.) 210,000
Applied factory overhead
(6,060,000/120,000 x 3,500 hrs.) 176,750
Total P1,376,750

59. In relation to the above, determine the over-or underapplied factory

overhead for November 20x7?
a. P45,750 underapplied
b. P156,250 overapplied
c. P71,750 underapplied

38
d. P76,350 underapplied

Answer: A
Actual factory overhead incurred:
Indirect materials used P120,000
Indirect labor 150,000
Supervisory salaries 60,000
Factory facilities 64,000
Production equipment costs 81,000 P475,000
Applied factory overhead
(6,060,000/120,000 x 8,500 hrs)
429,250
Underapplied factory overhead P
45,750

60. The Villeurbanne Company uses a job-costing system at its Marikina

plant. The plant has a Machining Department and an Assembly
Department. Its job-costing system has two direct-cost categories (direct
materials, and direct manufacturing labor) and two manufacturing
overhead cost pools (the Machining Department, allocated using actual
machine-hours, and the Assembly Department, allocated using actual
direct manufacturing labor cost). The 20x7 budget for the plant is as
follows:

Machining Dept. Assembly

Dept.
Manufacturing overhead P1,800,000 P3,600,000
Direct manufacturing labor cos t 1,400,000
2,000,000
Direct manufacturing labor-hours 100,000 200,000
Machine-hours 50,000 200,000

The company uses a budgeted overhead rate for allocating overhead to

production orders on a machine-hour basis in Machining and on a direct
manufacturing labor-cost basis in Assembly.
During February, the cost record for Job 494 contained the following:

Machining Dept. Assembly

Dept.
Direct materials used P45,000
P70,000
Direct manufacturing labor cost 14,000
15,000
Direct manufacturing labor-hours 1,000
1,500
Machine-hours 2,000
1,000

39
Compute the total manufacturing overhead costs of Job 494.
a. P 99,000
b. P243,000
c. P144,000
d. P128,000

Answer: A
Machining Department (1,800,000/50,000 x 2,000 hrs) P72,000
Assembly Department (3,600,000/2,000,000 x 15,000) 27,000
P99,000

ACCOUNTING FOR FACTORY OVERHEAD

61. The following information is available concerning the inventory and cost
of goods sold accounts of Sexy Company at the end of the most recent
year.
Work in Finished Cost of
Process Goods
Goods Sold
Direct materials P2,000 P 6,000
P12,000
Direct labor 2,000 16,000 32,000
Applied factory overhead 2,000 16,000
32,000
Year-end balance P6,000 P38,000
P76,000

Applied Factory Overhead has already closed to Factory Overhead

Control. In all previous years, over- or underapplied factory overhead
was treated as an adjustment to income or expense. Beginning
inventories of the most recent year were insignificant.
Calculate the amount of Finished Goods account presented in the
balance sheet for the year assuming an overapplied of P12,000 is to be
allocated to inventories and cost of goods sold in proportion to the
applied overhead in those accounts.
a. P41,800
b. P34,200
c. P34,160
d. P41,840

Answer: C
Finished goods account – normal P38,000
Less: Overapplied factory overhead:
12,000/50,000 x 16,000 3,840
Finished goods – balance sheet P34,160

Questions 62 and 63 are based on the following:

40
Tess is the supervisor of Department 5 in the Davao plant of Myles Instrument
Company. She is responsible for the cost of direct materials, direct labor, and
variable overhead costs incurred in this department. The fixed overhead cost is
not under her jurisdiction.

During a recent week, actual factory overhead costs for Department 5 were as
follows:
Actual Variable Overhead:
Indirect materials P19,400
Supplies 14,200
Telephone 700
Heat and light 1,600
Power 7,000
Repairs and maintenance 3,200
Total variable overhead P46,100

Actual Fixed Overhead:

Indirect labor P61,000
Supervision 42,000
Heat & light 7,000
Repairs & maintenance 9,000
Depreciation 21,000
Total fixed overhead 140,000
Total actual overhead P186,100

The department operated at 45,000 direct labor hours during the week. A
budget of factory overhead for 45,000 direct labor hours is as follows:
Budgeted Variable Overhead:
Indirect materials P16,500
Supplies 12,400
Telephone 700
Heat & light 1,550
Power 7,000
Repairs & maintenance 2,350
Total variable overhead P 40,500
Budgeted Fixed Overhead:
Indirect labor P61,000
Supervision 42,000
Heat & light 7,000
Repairs & maintenance 9,000
Depreciation 21,000
Total fixed overhead 140,000
Total budgeted overhead
P180,500

41
Variable overhead is costed to the products at the rate of 0.90 per direct labor
hour, and fixed overhead is costed to the products at the rate of 2.80 per direct
labor hour.

62. How much overhead was costed to the products during the week?
a. P166,500
b. P186,100
c. P180,500
d. P172,100

Answer: A
Variable overhead P0.90
Fixed overhead 2.80
Total P3.70 x 45,000 hrs. = P166,500

63. Compute the overapplied or underapplied overhead for the week?

a. P5,600 overapplied
b. P5,600 underapplied
c. P19,600 overapplied
d. P19,600 underapplied

Answer: D
Actual factory overhead P186,100
Applied factory overhead – per answer in no. 2 166,500
Underapplied overhead P 19,600

64. The following cost data for 20x0 pertain to Heartstrings, Inc., a greeting
card manufacturer:
Direct material used in production
P2,100,000
Advertising expense 99,000
Depreciation on factory building
155,000
Direct labor: wages 485,000
Cost of finished goods inventory at year-end
115,000
Indirect labor: wages 140,000
Production supervisor’s salary 45,000
Service department costs*
100,000
Direct labor: fringe benefits 95,000
Indirect labor: fringe benefits 30,000
Fringe benefits for production supervisor
9,000
Total overtime premiums paid
55,000

42
Cost of idle time: production employees
40,000
Administrative costs
150,000
Rental of office space for sales personnel ** 15,000
Sales commissions 5,000
Product promotion costs 10,000

* All services are provided to manufacturing departments.

** The rental of sales space was made necessary when the sales offices
were converted to storage space for raw material.
Compute the total amount charged to Factory Overhead Control account.
a. P669,000
b. P684,000
c. P654,000
d. P569,000
Answer: A
Depreciation on factory building P155,000
Indirect labor: wages 140,000
Production supervisor’s salary 45,000
Service department costs 100,000
Direct labor: fringe benefits 95,000
Indirect labor: fringe benefits 30,000
Fringe benefits for production supervisor 9,000
Total overtime premiums paid 55,000
Cost of idle time: production employees 40,000
Total P669,000
65. Kyoto Corporation, a Japanese manufacturer of television sets, provides
the following data for 20x9:

Budgeted overhead cost Y20,000,000

Budgeted activity 20,000 machine
hours
Actual overhead cost Y21,500,000
Overapplied overhead Y500,000

Determine the amount of machine hours worked at Kyoto Corporation

during 20x9.
a. 22,000
b. 20,000
c. 21,000
d. 20.500

Answer: A
Actual overhead cost Y21,500,000
Overapplied overhead 500,000
Applied factory overhead Y22,000,000

43
Actual machine hours Y22,000,000/(Y20,000,000/20,000 MH) = 22,000

66. Jabotinsky Company, an Israeli manufacturer of olive wood products, uses

a predetermined factory overhead application rate based on direct labor
cost. For 20x7, Jabotinsky’s budgeted overhead was 900,000 shekesl,
based on a volume of 50,000 direct labor hours and a budgeted wage
rate of 9 shekels per hour. Actual factory overhead amounted to 963,000
shekels. For 20x7, the overapplied factory overhead was 33,000 shekels.

Compute the amount of actual direct labor cost for 20x7.

a. P498,000
b. P465,000
c. P450,000
d. P481,500

Answer: A
Overhead rate = 900,000/(50,000 x 9) = 200% of direct labor cost
Actual factory overhead 963,000
shekels
Overapplied factory overhead 33,000 shekels
Applied factory overhead 996,000
shekels
Actual direct labor cost = 996,000/200% = 498,000 shekels

67. Evan’s Enterprises operates its factory on a two-shift basis and pays a
late-shift differential of 15 percent above the regular wage rate of P18 per
hour. The company also pays a premium of 50 percent for overtime work.
During 20x8, work occurred in the following categories:

Number of hours worked during the regular shift

10,000
Number of overtime hours for regular shift workers
300
Number of hours worked during the late shift
6,000
Compute the amount of labor-related cost to assign to factory overhead.
a.P8,100
b.P132,300
c.P18,900
d.P73,710

Answer: C
Overtime premium = 300 hrs x 18 x 50% P 2,700
Late-shift differential = 6,000 x 18 x 15% 16,200
Total P18,900

68. The following information pertains to Portsmouth Glass Works for 20x4.

44
Budgeted direct-labor cost: 75,000 hours at P16 per hour
Actual direct-labor cost: 80,000 hours at P17.50 per hour
Budgeted manufacturing overhead: P997,500
Actual manufacturing overhead:
Depreciation P240,000
Property taxes 12,000
Indirect labor 82,000
Supervisory salaries 200,000
Utilities 59,000
Insurance 30,000
Rental of space 300,000
Indirect material (see data below) 79,000
Indirect material:
Beginning inventory, 1/1/x4 48,000
Purchases during the 20x4 94,000
Ending inventory, 12/31/x4 63,000

Compute the overapplied or underapplied overhead for 20x4.

a. P62,000 overapplied
b. P62,000 underapplied
c. P66,843.75 overapplied
d. P66,843.75 underapplied

Answer: A
Actual manufacturing overhead:
Depreciation P240,000
Property taxes 12,000
Indirect labor 82,000
Supervisory salaries 200,000
Utilities 59,000
Insurance 30,000
Rental of space 300,000
Indirect materials 79,000
P1,002,000
Applied factory overhead
( 997,500/75,000 hrs x 80,000 hrs)
1,064,000
Overapplied factory overhead P
62,000

69. C Manufacturing Company produces CB stereos for cars. The following

cost information is available for the period ended December 31, 20xx:

Materials put into production: P1,200,000, of which P800,000 was for

direct materials.
Factory labor costs for the period: P900,000, of which P250,000 was for
indirect labor.
45
Factory overhead costs for utilities: P400,000.
Selling, general, and administrative expenses: P600,000.

Compute the factory overhead cost.

a. P400,000
b. P1,700,000
c. P1,000,000
d. P1,050,000

Answer: D
Indirect materials (1,200,000 – 800,000) P400,000
Indirect labor 250,000
Factory overhead cost for utilities 400,000
P1,050,000

70. R Factory provides for an incentive scheme for its factory workers which
features a combined maximum guaranteed wage and a piece rate. Each
worker is paid P11.25 per piece with a minimum guaranteed wage of
P875 per week. Production report for the week show:

Employee Units Employee Units

Name Produced Name Produced
B 67 S 82
L 78 H 72
E 80 A 75
Compute the portion of the weekly payroll that should be charged to
factory overhead.
a. P5,325.00
b. P5,275.00
c. P5,217.50
d. P217.50

Answer: D
Required yield per week (875/11.25) = 77.78 units
Employee B:
Minimum guaranteed pay per week P875
Direct labor cost (67 x 11.25) 753.75
P121.25
Employee H:
Minimum guaranteed pay per week P875
Direct labor cost ( 72 x 11.25) 810 65.00
Employee A:
Minimum guaranteed pay per week P875
Direct labor cost (75 x 11.25) 843.75
31.25
Charged to factory overhead control
P217.50

46
71. Willy Company has underapplied overhead of P45,000 for the year ended
December 31, 20x6. Before disposition of the underapplied overhead,
selected December 31, 20x6, balance from Willy’s accounting records are
as follows:

Sales P1,200,000
Cost of goods sold 720,000
Inventories: Direct materials 36,000
Work in process 54,000
Finished goods 90,000

Under Willy’s cost accounting system, over- or underapplied overhead is

allocated to appropriate inventories and cost of goods sold based on
year-end balances. In its 20x6 income statement, Willy should report
cost of goods sold of:
a. P682,500
b. P684,000
c. P756,000
d. P757,500

Answer: D
Normal cost of goods sold P720,000
Add: Underapplied factory overhead
(720,000/864,000 x 45,000) 37,500
Actual cost of goods sold – income statement P757,500

72. The Winslow Corporation sells stacks of poker chips to several casinos in
the Las Vegas area. The corporation collected the following information
pertaining to its factory overhead:

Actual factory overhead for 20x8 P250,000

Expected factory overhead for 20x8:
Variable
P7.20/stack
Fixed P14,000
Semi-variable:
0-15,000 stacks P 9,500
15,001-30,000 P13,000
30,001-45,000 P16,500
45,001-up P20,000
Expected capacity for 20x8 30,500
stacks
Units of production for July 20x8 3,250
stacks
Actual factory overhead for July 20x8 10.5% of actual factory overhead
for 20x8

47
Expected capacity is used to determine estimated factory overhead,
with units of production as the base. Determine the over-or underapplied
factory overhead for the month of July 20x8.
a. P400 overapplied
b. P400 underapplied
c. P1,360 overapplied
d. P1,360 underapplied.

Answer: A
Actual factory overhead for July 20x8 P26,250
Applied factory overhead for July 20x8
8.20 x 3,250 stacks 26,650
Overapplied factory overhead P 400

Budgeted Factory Overhead:

Variable (7.20 x 30,500 stacks) = P219,600
Fixed 14,000
Semi-variable 16,500
Total P250,100
Factory overhead rate for 20x8:
P250,100/30,500 stacks = P8.20

73. C Company’s factory has a relevant range of 20,000 to 100,000 liters of

TLC, an essential compound used in the manufacture of anabolic
asteroids. It incurs a fixed cost per month of P100,000 and a variable cost
of P5 per liter. Its monthly production are (in liters):

July 2,000 October 4,400

August 3,000 November 5,700
September 4,000 December 8,000

Compute the fixed cost per unit for the six months period
a. P8.69
b. P2.67
c. P22.14
d. P23.69

Answer: C
Total fixed cost for 6 months (6 x 100,000) P600,000
Total production in liters
July 2,000
August 3,000
September 4,000
October 4,400
November 5,700
December 8,000 27,100
Fixed cost per unit (P600,000/27,100) P22.14

48
74. A hotel pays the phone company $100 per month plus $0.25 for each call
made. During January 6,000 calls were made. In February 5,000 calls
were made.

Calculate the hotel’s phone bills for January and February.

a. P1,600 and P1,350
b. P1,600 and P1,250
c. P1,500 and P1,250
d. P1,500 and P1,350

Answer: A
January
Fixed cost P 100
Variable (0.25 x 6,000) 1,500 P1,600
February
Fixed cost P 100
Variable (0.25 x 5,000) 1,250 P1,350

75. Mighty Muffler, Inc., operates an automobile service facility, which

specializes in replacing mufflers on compact cars. The following table
shows the costs incurred during month when 600 mufflers were replaced.

Number of Muffler Replacements

500 600 700
Total costs:
Fixed costs a P42,000 b
Variable costs c 30,000 d
Total costs e P72,000 f
Cost per muffler replacement:
Fixed cost g h i
Variable cost j k l
Total cost per muffler replacement m n o

How much is letter o?

a. P134.00
b. P120.00
c. P110.00
d. P130.00

Answer: C
Total costs at 700:
Fixed costs P42,000
Variable costs (P30,000/600 x 700) 35,000
P77,000
Total cost per muffler replacement
P77,000/700 = P110

49
76. At the beginning of the year, Beauty Inc. budgeted the following:
Units 10,000
Sales P100,000
Less: Total variable expenses P 60,000
Total fixed expenses 20,000 80,000
Net income P 20,000
Factory overhead: Variable P 30,000
Fixed 10,000

There were no beginning inventories. At the end of the year, there was
no work in process; total factory overhead incurred in the year was
P39,500; and underapplied factory overhead was P1,500. Factory
overhead was applied on the basis of budgeted unit production. How
many units were produced this year?
a. 10,250
b. 9,500
c. 10,000
d. 9,250

Answer: B
Factory overhead incurred P39,500
Less: Underapplied factory overhead 1,500
Applied factory overhead P38,000
Overhead rate
Variable P30,000
Fixed 10,000 P40,000
Units budgeted 10,000
Overhead rate (P40,000/10,000 units) P4.00/unit

Units produced this year (P38,000/4.00 per unit) 9,500

units

77. Honey Health Club is organized into two operating departments –

Programming & Classes and Individual Fitness. There are also two service
centers – Janitorial and Cafeteria. Janitorial costs are allocated based on
square footage, while Cafeteria costs are allocated based on number of
employees. The costs traceable to the operating and service centers
during 20x9 were as follows:

Operating Departments
Service Centers Programming
Individual
Janitorial Cafeteria & Classes Fitness
Materials P 10,000 P200,000 P 8,000 P
5,000
Labor 100,000 300,000 265,000 150,000
50
Overhead 20,000 40,000 75,000 90,000
P130,000 P540,000 P348,000 P245,000

In addition to these costs, the Cafeteria generates revenues of P480,000.

Other data are as follows:
Operating Departments
Service Centers Programming
Individual
Janitorial Cafeteria & Classes Fitness
Square footage 1,600 8,000 24,000
32,000
No. of employees 5 14 19
6

Using the reciprocal method to allocate the service center costs,

compute the total cost for Programming & Classes operating department
after allocation of service center costs.
a. P450,936
b. P401,617
c. P397,319
d. P754,936

Answer: A
Janitorial service cost allocated P130,000
Cafeteria service cost allocated (540,000 – 480,000)
60,000
Correct cost of Janitorial service: P130,000 + 5/30 of Cafeteria.
Correct cost of Cafeteria service: P60,000 + 8,000/64,000 of Janitorial.
Therefore janitorial service cost must be:
Janitorial service = P130,000 + 1/6(60,000 + 1/8 of Janitorial)
= P130,000 + 10,000 + .02083333J
= P140,000/.9791666
= P142,979

Therefore : Cafeteria = P60,000 + 1/8(142,979) = P77,872

Answer: Programming and Classes total cost:

Budget P348,000
Share from Janitorial (24/64 x 142,979) 53,617
Share from Cafeteria (19/30 x 77,872) 49,319
Total P450,936

Questions 78 and 79 are based on the following:

51
Cleveland Instrument Company manufactures gauges for construction
machinery. The company has two production departments: Molding and
Assembly. There are three service departments: Maintenance, Personnel, and
Computer Aided Design (CAD). The usage of these service departments’ output
and their budgeted costs during 20x4 are as follows:
Provision of Service Output in 20x4 (in hours of service)
Provider of Service
User of Service Personnel Maintenance CAD
Personnel - - -
Maintenance 500 - -
CAD 500 500 -
Molding 4,000 3,500 4,500
Assembly 5,000 4,000 1,500
Total 10,000 8,000 6,000

The budgeted costs in Cleveland Instrument Company’s service departments

during 20x4 are as follows:
Personnel Maintenance CAD
Variable P 50,000 P 80,000 P
50,000
Fixed 200,000 150,000 300,000
Total P250,000 P230,000 P350,000

78. Use the direct method to allocate Cleveland Instrument Company’s

service department costs to its production departments. Determine the
share of Molding Department.
a. P480,944
b. P463,125
c. P340,508
d. P349,056

Answer: A
Share of Molding Department of service costs:
Personnel = 4/9 x 250,000 P111,111
Maintenance = 3.5/7.5 x 230,000 107,333
CAD = 4.5/6 x 350,000 262,500 P480,944

79. Determine the proper sequence to use in allocating the firm’s service
department costs by the step-down method and use the step-down
method to allocate the company’s service department costs. Determine
the share of Assembly Department.
a. P340,664
b. P480,944
c. P463,125
d. P489,492

Answer: A

52
Share of Assembly Department of service costs:
Personnel = 5/10 x 250,000 P125,000
Maintenance = 4/8 x (230,000
+ .5/10 x 250,000) 121,250
CAD = 1.5/6 x (350,000 + .5/10
x 250,000 + .5/8 x 242,500) 94,414 P340,664

80. Wilner Airlines has two operating departments (Freight and Passenger)
and two service centers (Maintenance and Administration). The following
table shows June 20x8 data:

Service Centers Operating

Departments
Maintenanc Administratio Freight Passenge
e n r
Costs P630,000 P950,000 P1,800,500 P5,260,470
Labor 8,000 9,000 30,000 51,000
hours
Number
of 40 50 80 200
employe
es

Maintenance costs are allocated using labor hours, while Administration

costs are allocated using number of employees.
Using the reciprocal method, how much service department costs
will be allocated to Freight Operating Department?
a. P618,050
b. P354,000
c. P509,198
d. P505,163

Answer: C
Maintenance cost must be = 630,000 + 40/320 of Administration.
Administration cost must be = 950,000 + 9,000/90,000 of Maintenance.
Therefore, maintenance = 630,000 + 1/8(950,000 + 1/10M)
= 630,000 + 118,750 + .0125M
= 748,750/.9875
= 758,228
Therefore, administration = 950,000 + .10(758,228) = 1,025,823

Answer: Share on maintenance costs (758,228 x 30/90) P252,743

Share on administration costs (1,025,823 x 80/320 )
256,455
Total P509,198

53
81. The Faustino Company allocated service department costs using the step
method. The budgeted costs for the period for the service and producing
departments were as follows:

Percentage of Services
Departments Budgeted costs Provided by
Departments
Service Departments: W X Y Z
W P 155,000 10% 2.5% 10% 15%
X 300,000 14 17
Y 440,000 15 17.5
Z 90,000 5 16 13 20
Producing Departments:
37 1,075,000 45 20 30 10
54 2,530,000 25 30 30 55

The service departments should be allocated in the following order: Y, X,

W, Z. Each service departments its costs by using “percentage of service
provided.” The direct labor hours estimated for the period were 34,000
for Department 37 and 26,000 for Department 54. Direct labor hours are
used in determining the factory overhead application rates for the
producing departments.
Calculate the factory overhead for producing department 37.
a. P43.60
b. P119.53
c. P57.01
d. P91.40

Answer: A
Producing Departments Service Departments
37 54 W X Y Z
Budgeted costs P1,075,00 P2,530,00 P155,00 P300,00 P440,000 P90,000
0 0 0 0
Allocation:
Y=30:30:10:17 132,000 132,000 44,000 74,800 ( 440,000) 57,200
:13
X=20:30:2.5:1 109,431 164,146 13,679 (374,80 87,544
6 0)
W=45:25:5 127,607 70,893 (212,67 14,179
9)
Z=10:55 38,296 210,627 (248,923
)
P1,482,33 P3,107,66
4 6
Base (Direct 34,000 26,000
labor hrs)
Overhead Rate P43.60

54
82. Pinoy National Bank has two service departments, the Personnel
Department and the Computing Department. The bank has two other
departments that directly service customers, the Deposit Department
and the Loan Department. The usage of the two service departments’
output in 20x3 is as follows:

Provider of Service
User of service Personnel Computing
Personnel 15%
Computing 10%
Deposit 60% 50%
Loan 30% 35%
The budgeted cost in the two service departments in 20x3 were as
follows:
Personnel P153,000
Computing P229,500

Under the direct method of allocating service department cost, the

amount allocated to Deposit Department must be:
a. P237,000
b. P238,431
c. P235,800
d. P191,250

Answer: A
Allocated service department cost to Deposit Department – Direct
method
Personnel = 60/90 x 153,000 P102,000
Computing = 50/85 x 229,500 135,000 P237,000

83. Under the step method of allocating service department cost, the amount
allocated to Loan Department must be (Pinoy allocates Personnel
Department first):
a. P145,500
b. P146,700
c. P144,069
d. P191,250

Answer: B
Allocated service department costs to Loan Department – Step method
Personnel = 30% x 153,000 P 45,900
Computing = 35/85 x {229,500
+ 10%(153,000)} 100,800 P146,700

55
84. This schedule was used by Junes, Inc., in order to change its method
of allocation from the step method to the direct method.
Factory Overhead Total Costs Service
Costs, Producing Departments
Department
ONE TWO A B C
Budgeted costs: P1,000,00 P P300,00 P400,125 P150,875
0 975,000 0
Allocation of:
Department C 45,225 72,360 18,090 15,200 (150,875)
Department B 166,130 166,130 83,065 (415,325)
Department A 240,693 160,462 ( 401,15
5)
Balance after P1,452,04 P1,373,95
Allocation 8 2
Rates based on direct P48.4016 P68.6976
Labor hours

Using the direct method, calculate the new factory overhead rate for
producing department two.
a. P47.936
b. P69.395
c. P47.516
d. P70.025

Answer: B

Using step method the following rates were used to allocate service
departments cost.
C B A
Departments Total Percent Total Percent Total
Percent
ONE P 45,225 30% P166,130 40% P240,693 60%
TWO 72,360 48% 166,130 40% 160,462 40%
A 18,090 12% 83,065 20% -
B 15,200 10% - -
C - - - .
P150,875 P415,325 P401,155

Service departments allocated to Department TWO:

Department C = 150,875 x 48/78 P 92,846
Department B = 400,125 x 40/80 200,063
Department C = 300,000 x 40% 120,000
P412,909

Total direct labor hours for Department TWO

(P1,373,952/68.6976) 20,000 hours

56
Answer: (P975,000 + P412,909)/20,000 hours = P69.395

85. Phil. College allocates support department costs to its individual schools
using the algebraic method. Information for May 2001 is as follows:

Support departments
Maintenance Power
Cost incurred P99,000 P54,000
Service percentage provided for:
Maintenance - 10%
Power 20% -
School of Education 30% 20%
School of Technology 50% 70%

What is the amount of May 2001 support department costs allocated to

the School of Technology? (Round off figures to the nearest peso)
a. P103,875
b. P106,900
c. P105,980
d. P108,000

Answer: C
Correct cost for allocation for Maintenance department = 99,000 + 10% of
Power
Correct cost for allocation for Power department = 54,000 + 20% of
Maintenance
Therefore, Maintenance cost = 99,000 + 10%(54,000 + 20% of Maintenance)
= 99,000 + 5,400 + 2% of Maintenance
= 104,400/.98
= 106,531
Power cost = 54,000 + 20%(106,531)
= 75,306
Answer: Maintenance cost (50% of 106,531) P53,266
Power cost (70% of 75,306) 52,714
P105,980

86. Potter Company had decided to distribute the costs of service

departments by the simultaneous (algebraic) method. The producing
departments are P1 and P2, the service departments are S1 and S2, and
the monthly data are:
Actual Factory Overhead Services Provided
by
Costs Before Distribution S1
S2
P1 P94,000 40% 50%
P2 85,000 50% 30%
S1 20,000 - 20%
S2 17,600 10% -
57
The total factory overhead of producing department P2 after distribution
of service department costs must be:
a. P113,600
b. P103,000
c. P114,625
d. P115,867

Answer: B
Correct cost of S1 = 20,000 + 20% of S2
Correct cost of S2 = 17,600 + 10% of S1
Therefore, S1 = 20,000 + 20%(17,600 + 10% of S1)
= 20,000 +3,520 + 2% of S1
= 23,520/.98
= 24,000
S2 = 17,600 + 10%(24,000)
= 20,000
Answer: Budgeted costs P85,000
Allocated service department costs:
S1 = 50% x 24,000 12,000
S2 = 30% x 20,000 6,000
P103,000

87. Rumors Company applies factory overhead per machine hour as follows:
Fabricating department, P7.75; Spreading department, P15.10 and
Gossiping department, P2.125. Actual machine hours are 19,000 hours
for fabricating, 27,500 hours for spreading and 5,500 hours for gossiping.
If the actual factory expenses for the period is P574,375, how much is
over (under) applied factory overhead ?
a. (P11,875)
b. (P23,562.50)
c. (P187.50)
d. (P76,125)

Answer: C
Actual factory overhead
P574,375
Applied factory overhead:
Fabricating department (7.75 x 19,000 hrs.) P147,250
Spreading department (15.10 x 27,500 hrs.) 415,250
Gossiping department (2.125 x 5,500 hrs.) 11,687.50
574,187.50
Underapplied factory overhead P
187.50

88. U Productions has submitted the following data:

58
Machine hours 275,000 Direct materials cost P2,500,000
Direct labor hours 625,000 Unit of production
1,250,000
Direct labor cost P3,750,000 Factory overhead cost P1,062,500

Compute factory overhead application rate based on direct labor cost.

a. 28 1/3%
b. 85%
c. 32.5%
d. 170%

Answer: A
Factory overhead cost P1,062,500
Direct labor cost 3,750,000
Overhead rate (1,062,500/3,750,000) 28 1/3%

89. B Company has an expected production level for 20x6 of 175,000 bagels.
B’s fixed factory overhead is P450,000 and applies factory overhead on
the basis of expected production capacity at the rate of P5.20 per bagel.
Compute B’s variable factory overhead cost per unit.
a. P2.575
b. P3.025
c. P2.925
d. P2.63

Answer: D
Factory overhead rate per bagel P5.20
Less: Fixed factory overhead rate per bagel
(450,000/175,000) 2.57
Variable factory overhead rate per bagel P2.63

90. J & J Company budgeted total variable overhead costs at P180,000 for the
current period. In addition, they budgeted costs for factory rent at
P215,000, costs for depreciation on office equipment at P12,000, costs
for office rent at P92,000, and costs for depreciation of factory equipment
at P38,000. All these costs were based upon estimated machine hours of
80,000. At the end of the period, the Factory Overhead Control account
had a balance of P387,690. Actual machine hours were 74,000. What was
the over- or underapplied factory overhead for the period?
a. P12,650 overapplied
b. P12,650 underapplied
c. P108,850 overapplied
d. P108,850 underapplied

Answer: A
Actual factory overhead
(Factory overhead control account balance) P387,690
59
Applied factory overhead
(5.4125 x 74,000 actual hours) 400,525
Overapplied factory overhead P 12,835

 Factory overhead rate:

Budgeted variable overhead P180,000
Budgeted factory rent 215,000
Budgeted depreciation of factory equipment 38,000
Total budget factory P433,000

Overhead rate (433,000/80,000) P5.4125 per hour

60
PROCESS COSTING

Questions 91 and 92 are based on the following:

Bert Pharmaceutical Company manufactures a tablet for allergy sufferers. All

ingredients are added at the beginning of the Blending Operation. Conversion
costs flow uniformly throughout the process. Tabulating and Coating are
operations downstream from Blending. Information on the Blending Operation
for October is as follows:
Work in Process – Blending Operations

October 1, balance Completed and transferred

(100,000 units, 40% to Tabulating:
complete for conversion 151,760
costs)
Direct materials added Units - ?
(1,000,000 units) 1,310,00
0
Direct labor cost ? Costs - ?
Factory overhead (applied 396,000
at 180% of direct labor
cost)
October 31, balance
(200,000 units, 70%
complete for conversion
costs) ?

The October 1 balance consists of the following cost elements:

Direct materials P128,000
Direct labor 8,800
Factory overhead 14,960
Total costs P151,760

91. Using the FIFO method, compute the cost of completed and transferred to
Tabulating operation.
a. P1,729,520
b. P2,077,760
c. P1,730,250
d. P1,926,000

Answer: A

In process beginning 100,000 units

Started in process (direct materials added) 1,000,000
Total units placed in process 1,100,000 units
In process, ending 200,000

61
Finished and transferred to Tabulating 900,000 units

Materials Labor Overhead

Finished and transferred out 900,000 900,000 900,000
In process, end 200,000 140,000 140,000
In process, beginning (WDLM) (100,000) ( 40,000) ( 40,000)
Equivalent production (FIFO) 1,000,000 1,000,000 1,000,000
Cost P1,310,000
(396,000/180%) P 220,000 P396,000
+ P151,760
=
P2,077,760
Unit cost P 1.31 P 0.22 P 0.396

Cost Accounting:
Finished and transferred to Tabulating P1,729,520
In process, end: Materials = 200,000 x 1.31 P262,000
Conversion cost = 140,000 x 0.616 86,240 348,240

92. Using the average method, compute the cost of completed and
transferred to Tabulation operation.
a. P1,729,520
b. P2,077,760
c. P1,730,250
d. P1,926,000

Answer: C
Materials Labor Overhead
Finished and transferred out 900,000 900,000 900,000
In process, end 200,000 140,000 140,000
Equivalent production (WA) 1,100,000 1,040,000 1,040,000
Costs P1,438,000 P 228,800 P 410,960 = P2,077,760

Unit cost P 1.3073 P 0.22 P 0.3952

Cost accounting:
Finished and transferred to Tabulating ( 900,000 x 1.9225) = P1,730,250

93. The Blondie Dye Company manufactures hair rinses and colourings.
Direct materials are introduced into production at the 50% stage of
completion in Department A. Direct labor and factory overhead are
incurred evenly throughout the process. Because of the timing of certain
chemical processes, units are often at different stages of completion.

Management uses the fifo costing method in an effort to analyze costs.

Beginning units in process in Department A for May were at the following
stages of completion.
40% of the units were 10% complete.

62
15% of the units were 40% complete.
20% of the units were 55% complete.
25% of the units were 70% complete.
Beginning units in process amounted to 26,000 units, with a total costs
of P37,700.
During May, 68,000 units were started in process. The following costs
were incurred: direct materials, P47,092; direct labor, P34,658; and
factory overhead, P51,987.
Ending units in process for May amounted to 6,000 units. They were at
the following stages of completion:
35% of the units were 25% complete.
50% of the units were 45% complete.
10% of the units were 75% complete.
5% of the units were 95% complete.
There were no spoiled units during the month.
Determine the cost of work in process inventory ending.
a. P4,565.50
b. P3,825.25
c. P4,250.75
d. P3,354.75

Answer: D
Materials Labor
Overhead
Finished and transferred out 88,000 88,000
88,000
In process, end:
35% x 6,000 - 525 525
50% x 6,000 - 1,350 1,350
10% x 6,000 600 450 450
5% x 6,000 300 285 285
In process, beginning:
40% x 26,000 - ( 1,040) ( 1,040)
15% x 26,000 - ( 1,560) ( 1,560)
20% x 26,000 ( 5,200) ( 2,860) ( 2,860)
25% x 26,000 ( 6,500) ( 4,550) ( 4,550)
77,200 80,600 80,600
Cost P47,092 P34,658
P51,987
Unit cost P0.61 P0.43 P0.645

Cost accounting:
In process, end = Materials (900 x 0.61) P 549
Conversion costs (2,610 x 1.075)
2,805.75
P3,354.75

63
94. C Corporation is a manufacturer that uses average costing to account for
costs of production. C manufactures a product that is produced in three
separate departments: Molding, Assembling, and Finishing. The following
information was obtained for the Assembling Department for June:

Work in process, June 1 – 2,000 units, composed of:

Amount Degrees of
completion
Transferred in from the Molding Department P32,00 100%
Cost added by the Assembling Department
Direct materials 20,000 100%
Direct labor 7,200 60%
Factory overhead 5,500 50%
The following activity occurred during June.
(a) 10,000 units were transferred in from the Molding department at a
cost of P160,000.
(b) P150,000 of cost were added by the Assembling Department: direct
materials, P96,000; direct labor, P36,000; and factory overhead,
P18,000.
(c) 8,000 units were completed and transferred to the Finishing
Department.

At June 30, 4,000 units were still in work in process, with the following
degrees of completion: direct materials, 90%; direct labor, 70%; and
factory overhead, 35%.
Determine the cost transferred out during the month of June.
a. P260,000
b. P114,700
c. P113,500
d. P261,200

Answer: A
Trans-In Materials Labor Overhead
Finished and
transferred out 8,000 8,000 8,000 8,000
In process, end 4,000 3,600 2,800 1,400
Equivalent production 12,000 11,600 10,800 9,400
Cost P192,000 P116,000 P 43,200 P23,500
Unit cost P 16.00 P 10.00 P 4.00 P 2.50
Cost accounting:
Finished and transferred out (8,000 x 32.50) P260,000

Question 95 and 96 are based on the following:

Kristina Company, which manufactures quality paint sold at a premium

prices, uses a single production department. Production begins with the blending
of various chemicals, which are added at the beginning of the process, and ends
with the canning of the paint. Canning occurs when the mixture reaches the 90
64
percent stage of completion. The gallon cans are then transferred to the
Shipping Department for crating and shipment. Labor and overhead are added
continuously throughout the process. Manufacturing overhead is applied on the
basis of direct-labor hours at the rate of P3.00 per hour.

Prior to May, when a change in the process was implemented, work-in-

process inventories were insignificant. The change in the process enables
greater production but results in significant amounts of work in process for the
first time. The company has always used the weighted-average method to
determine equivalent units of production and unit costs. Now, production
management is considering changing from the weighted average method to the
first-in, first-out method. The following data relate to actual production during
the month of May.
Costs for May
Work-in-process inventory, May 1:
(4,000 gallons; 25% complete)
Direct materials (chemicals) P 456,000
Direct labor (P100 per hour) 62,500
Manufacturing overhead 18,750
Costs incurred in May:
Direct materials (chemicals) 2,284,000
Direct materials (cans) 70,000
Direct labor (P100 per hour) 350,000
Manufacturing overhead 105,000
Production data for May
Work-in-process inventory, May 1 (25% complete) 4,000 gallons
Started in May 21,000 gallons
Sent to Shipping Department 20,000 gallons
Work-in-process inventory, May 31 (80% complete) 5,000 gallons

95. Determine the cost allocated to finished goods under the weighted-
average method.
a. P2,708,875
b. P2,723,310
c. P3,346,250
d. P2,809,000

Answer: A
Chemical Can Labor Overhead
Finished and
transferred out 20,000 20,000 20,000 20,000
In process, end 5,000 - 4,000 4,000
Equivalent production 25,000 20,000 24,000 24,000
Cost P2,740,000 P 70,000 P412,500
P123,750
Unit cost P 109.60 P 3.50 P17.1875 P5.15625
Cost accounting:
Finished goods (20,000 x P135.44375) P2,708,875
65
96. Determine the cost allocated to work in process ending inventory under
the first-in, first-out method.
a. P622,940
b. P637,375
c. P537,250
d. P640,440

Answer: A
Chemical Can Labor
Overhead
Finished and
transferred out 20,000 20,000 20,000
20,000
In process, end 5,000 - 4,000 4,000
In process, beginning
(WDLM) ( 4,000) - ( 1,000) ( 1,000)
Equivalent production 21,000 20,000 23,000 23,000
Cost P2,284,000 P 70,000 P350,000
P105,000
Unit cost P108.76 P 3.50 P 15.217
P 4.565
Cost accounting:
In process, end = Materials (5,000 x 108.762) P543,810
Labor and overhead (4,000 x 19.782) 79,128 P622,938

97. Alberta Instrument Company uses a process costing system. A unit of

product passes through three departments – molding, assembly, and
finishing – before it is completed.

The following activity took place in the Finishing Department during May.
Work in process inventory, May 1 1,400
units
Units transferred in from the Assembly Department 14,000
units
Units transferred out to finished goods inventory 11,900
units

Raw material is added at the beginning of processing in the Finishing

Department. The work in process inventory was 70 percent complete as
to conversion on May 1 and 40 percent complete as to conversion on
May 31. Alberta Instrument Company uses the weighted-average
method of process costing. The equivalent units and current period costs
per equivalent unit of production for each cost factor are as follows for
the Finishing Department.
Equivalent Current Period Costs per
Units Equivalent Unit
Transferred in costs 15,400 P5.00
66
Raw materials 15,400 1.00
Conversion cost 13,300 3.00

Calculate the cost of units transferred to finished goods inventory during

May and the cost of Finishing Department’s work in process inventory on
May 31.
Finished Goods Work in Process Inventory
a. P107,100 P25,200
b. P107,100 P 6,300
c. P126,000 P 6,300
d. P126,000 P25,200

Answer: A

Finished Goods (11,900 units x 9) P107,100

In process, end = Transferred in (3,500 units x 5) P17,500
Raw materials (3,500 units x 1) 3,500
Conversion costs (1,400 units x 3) 4,200 P 25,200

98. Wood Glow Manufacturing Company produces a wood refinishing kit that
sells for P179.50. The final processing of the kits occurs in the Packaging
Department. A quilted wrap is applied at the beginning of the packaging
process. A compartmented outside box printed with instructions and the
company’s name and logo is added when units are 60 percent through
the process. Conversion costs, consisting of direct labor and applied
overhead, occur evenly throughout the packaging process. Conversion
activities after the addition of the box involve package sealing, testing for
leakage, and final inspection. The following data pertain to the activities
of the Packaging Department during the month of October.
 Beginning work in process inventory was 10,000 units, 40
percent complete as to conversion.
 40,000 units were transferred to Packaging during October.
 There were 10,000 units in ending work in process, 80
percent complete as to conversion.

The Packaging Department’s October costs were as follows:

Quilted wrap P800,000
Outside boxes 500,000
Direct labor 220,000
Applied overhead (P30.00 per direct labor hr) 660,000

The costs transferred in from prior processing were P30.00 per unit. The
cost of goods sold for the month was P2,400,000, and the ending
finished goods inventory was P840,000. Wood Glow uses the first-in,
first-out (FIFO) method for inventory valuation and for process costing.

67
Wood Glow’s controller, Mark Brandon, has been asked to analyze the
activities of the Packaging Dept. for the month of October.
Prepare the entry to record the transferred-out costs.
a. Work in process – next department 3,240,000
Work in process – packaging 3,240,000

b. Finished goods inventory 3,240,000

Work in process – packaging 3,240,000

c. Work in process – next department 2,620,000

Work in process – packaging 2,620,000

d. Finished goods inventory 2,620,000

Work in process – packaging 2,620,000
Answer: B
Cost of goods sold P2,400,000
Finished goods inventory end 840,000
Cost of goods manufactured P3,240,000

99. Schulteis Chicken Farms raises chicks to the egg-laying stage and then
moves the hens to the laying sheds. Information about the Chick Raising
Operation for March is:
(a) Beginning inventory of chicks is 12,000, 100 percent complete for
chicks and 20 percent for raising costs.
(b) Beginning inventory costs are P129,600 for chicks and P11,530 for
raising costs.
(c) Chicks added during March totalled 20,000.
(d) Costs incurred during the month are P200,000 for chicks and
P121,800 for raising costs.
(e) Ending inventory at March 31 consisted of 2,000 chicks, 100 percent
complete for chicks and 70 percent for raising costs.
Determine the cost of hens transferred to laying sheds during March.
a. P25,800
b. P437,050
c. P26,550
d. P436,300

Answer: B
Chicks Raising Costs
Transferred out 30,000 30,000
In process, end 2,000 1,400
In process, beginning ( 12,000) ( 2,400)
Equivalent production 20,000 29,000
Cost P200,000 P121,800 + 141,130 =
P462,930
Unit cost P10.00 P4.20
Cost accounting:

68
Transferred out P437,050
In process, end = Chicks (2,000 x 10) P20,000
Raising costs ( 1,400 x 4.20) 5,880 25,880

100. Department MK had 5,000 units in process on April 1 which were 60

percent complete for conversion costs. Materials are added at the
beginning of the departmental process, and conversion costs are added
uniformly throughout the process. On April 30, the in-process inventory
consisted of 8,000 units that had 25 percent of the work completed.
There were 83,000 equivalent units of output for the period with respect
to materials. The company is using the FIFO method. Calculate the
equivalent units for the period with respect to conversion costs.
a. 79,000
b. 80,000
c. 81,000
d. 77,000

Answer: A
Materials Conversion Costs
Finished and transferred out 80,000 80,000
In process, end 8,000 2,000
In process, beg. (WDLM) ( 5,000) ( 3,000)
Equivalent production 83,000 79,000
Questions 101 and 102 are based on the following:

Hubert Products Company produces Dalandan fruit drink. The units and
equivalent units (in liters), as well as unit costs, for the Initial Mix Department
are as following:
Materials Conversion
Equivalent units in beginning work in process 6,000 1,200
Units started and completed 40,000 40,000
Equivalent units in ending work in process 3,000 1,800
Unit costs P6.50 P10.50

101. Assuming the company uses the FIFO method. If the beginning work in
process inventory was valued at P126,000, what would be the cost of
goods completed?
a. P770,000
b. P896,000
c. P644,000
d. P857,600

Answer: D
Cost of goods completed:
In process beginning:
Cost last month P126,000
Cost this month:

69
Materials (6,000 x 6.50) 39,000
Conversion cost (1,200 x 10.50) 12,600 P177,600
Started and completed (40,000 x 17) 680,000 P857,600

102. Assuming the company uses the weighted average method. If the
beginning work in process inventory was valued at P126,000, what would
be the cost of ending work in process inventory?
a. P19,500
b. P18,900
c. P38,400
d. P51,600

Answer: C
Cost of work in process inventory:
Materials (3,000 x 6.50) P19,500
Conversion cost (1,800 x 10.50) 18,900
P38,400

103. Old Motors is engaged in the production of a standard type of electric

motor. Manufacturing costs for April totalled P660,000. At the beginning
of April, inventories appeared as follows:

Motors in production, estimated 80% complete (2,500 units) P320,000

Motors on hand and in finished goods (1,200 units) P192,000
During the month, 5,500 completed units were placed in finished stock.
At the end of April, inventories were:

Motors in production, estimated 50% complete 1,000 units

Motors on hand, completed and in finished goods 1,400
units

The company uses fifo costing for production and goods sold. In costing
finished goods, the unit cost for units completed from beginning work in
process inventory is kept separate from the unit cost of motors started
and completed during the month.
Compute the cost of goods sold.
a. P861,000
b. P858,500
c. P669,000
d. P776,000

Answer: B
Materials & Conversion
Finished and transferred out 5,500
In process, end 500
In process, beginning ( 2,000)
Equivalent production 4,000

70
Costs P660,000
Unit cost P165

Cost of goods sold (FIFO) 5,300 units

Motors on hand and finished goods beginning
inventory (1,200 units) P192,000
Motors finished and transferred out:
In process, beginning: (2,500 units)
Cost last month P320,000
Cost this month (500 x 165) 82,500 402,500
Started and finished (1,600 units x 165)
264,000
Total cost of goods sold P858,500

Units sold:
Beginning finished goods 1,200 units
Add: Units completed 5,500
Less: Ending finished goods (1,400) 5,300 units

104. The materials equivalent production units for June is 27,500 . Material
costs beginning P55,000. Materials added this month is P220,000. Cost of
units transferred to next department is P82,500. How much is the
material unit cost in June?
a. P3
b. P8
c. P10
d. P2

Answer: B
Material unit cost in June (220,000/27,500 units)` P8

105. Kulot, Inc. produced 280,000 complete units of products and 10,000
incomplete units (50% complete). Direct materials which are added at the
beginning of the process, cost P435,000 and conversion costs applied
uniformly were P142,500. There were no beginning inventories.

The total cost absorbed by the 280,000 complete units must be:
a. P567,368
b. P577,500
c. P420,000
d. P560,000

Answer: D
Materials Conversion
Finished and complete 280,000 280,000
In process, end 10,000 5,000
Equivalent production 290,000 285,000

71
Costs P435,000 P142,500
Unit cost P1.50 P0. 50
Cost accounting:
Finished and complete (280,000 x 2.00) P560,000

106. Karen Company had 3,000 units in work in process at April 1, 20x6, which
were 60% complete as to conversion cost. During April, 10,000 units were
completed. At April 30, 4,000 units remained in work in process, which
were 40% complete as to conversion cost. Direct materials are added at
the beginning of the process. How many units were started during April?
a. 9,000
b. 9,800
c. 10,000
d. 11,000

Answer: D
Completed units 10,000 units
In process, ending 4,000
In process, beginning ( 3,000)
Started during April 11,000 units

107. The Extracting Department is the first stage of U’s manufacturing cycle.
Here, materials are added at the beginning of the process. Pertinent data
on Extracting department for May, 19x6 show: work in process beginning,
60% complete, of 100,000 units: production started during the month of
600,000 units; and work in process ending, 70% complete, of 62,500
units. U uses the weighted average method. What are the equivalent
units of production for (1) materials and (2) conversion costs,
respectively?
a. (1) 637,500 units (2) 446,250 units
b. (1) 600,000 units (2) 420,000 units
c. (1) 700,000 units, (2) 681,250 units
d. (1) 62,500 units, (2) 43,750 units

Answer: C
Materials Conversion
Finished and transferred out 637,500 637,500
In process, end 62,500 43,750
Equivalent production 700,000 681,250

108. Beginning work in process was 60% complete as to conversion cost, and
ending work in process was 45% complete as to conversion costs. The
peso amount of the conversion cost included in ending work in process
(using the weighted average method) is determined by multiplying the
average unit conversion costs by what percentage of the total units in
ending work in process?
a. 100%

72
b. 60%
c. 55%
d. 45%

Answer: D
Stage of completion for conversion = 45%

109. During April 19x3 C Company’s department B equivalent unit product

costs, computed under the weighted-average method were as follows:
Material P1.00;
Conversion P3.00;
Transferred-in P5.00

Materials are introduced at the end of the process in Department B.

There were 2,000 units (40% complete as to conversion costs) in work in
process at April 30, 19x3. The total cost assigned to the April 30, 19x3
work in process inventory should be
a. P12,400
b. P13,600
c. P14,400
d. P18,000

Answer: A
Cost of work in process ending inventory:
Transferred in (2,000 x 5) P10,000
Conversion (2,000 x 40% x 3) 2,400
P12,400

Items 110 and1111 are based on the following:

Everywhere Goods Company had all materials in place at the start of

operations in Process I. The inventory in process at the beginning of
January consisted of 4,000 units with a total cost of materials of
P100,000 and labor and overhead of P20,000. In January, 20,000 units
were started in process with material cost of P500,000. Labor and
overhead in January cost P280,000. As of end of January, the inventory
was 100% complete in materials but only 60% in labor and overhead.
The ending inventory amounted to 10,000 units.

110. The total cost of work in process inventory as of the end of the month of
January amounted to
a. P530,000
b. P340,000
c. P468,000
d. P418,000

Answer: B

73
Materials Conversion
Finished and transferred out 14,000 14,000
In process, end 10,000 6,000
Equivalent production 24,000 20,000
Costs P600,000 P300,000
Unit cost P25 P15

Cost accounting:
Work in process inventory: Materials (10,000 x 25) P250,000
Conversion (6,000 x 15) 90,000
P340,000
111. The unit cost of goods finished is
a. P40
b. P39
c. P37.50
d. P42

Answer: A
Unit cost for completed units:
Materials P25
Conversion 15
P40

112. On November 1, 19x5, Dianne Company had 20,000 units of work in

process in Department I, which were 100% complete as to materials
costs and 20% complete as to conversion costs. During November,
160,000 units were started in Department I, and 170,000 units were
completed and transferred to Department 2. The work in process on
November 30, 19x5, was 100% complete as to material costs and 40%
complete as to conversion costs. By what amount would the equivalent
units for conversion costs for the month of November differ if the first-in,
first-out method were used instead of the weighted-average method?
a. 20,000 decrease
b. 16,000 decrease
c. 8,000 decrease
d. 4,000 decrease

Answer: D
Equivalent production under weighted average:
Finished and transferred out 170,000
In process, ending (20,000 + 160,000
– 170,000) = 10,000 x 40% 4,000
Total 174,000
Equivalent production under FIFO
Finished and transferred out 170,000
In process, end 4,000

74
In process, beginning ( 4,000) 170,000
Decrease 4,000

113. Department X had the following information for the month of May:
Beginning work in process (70% complete) 40,000 units
Started in May 300,000 units
Ending work in process (80% complete) 60,000 units

The cost of beginning work in process was P140,000 while the

production costs for the month registered at P1,172,000. The equivalent
conversion costs units for the month of May is
a. 328,000
b. 300,000
c. 340,000
d. 280,000

Answer: B
Finished and transferred out (40,000
+ 300,000 – 60,000) 280,000 units
In process, end (60,000 x 80%) 48,000
In process, beginning (40,000 x 70%) ( 28,000)
Equivalent production 300,000 units

114. Under the weighted average method, the unit cost last month and this
month are:
a. P4.00 and P5.00, respectively.
b. P5.00 and P4.00, respectively.
c. P4.00 and P3.91, respectively.
d. P3.91 and P4.00, respectively.

Answer: B
Unit cost last month (140,000/(40,000 x 70%) = P5
Unit cost this month (140,000 + 1,172,000)/328,000 units = P4

115. Rochelle Block Co. produces cement blocks used in the foundation for
buildings. The process takes place in two sequential departments. The
following data pertain to the month of October.
Pouring Dept. Finishing Dept.
Direct materials entered into
production P 70,000 P 25,000
Direct labor 340,000 280,000
Applied manufacturing overhead 680,000 420,000
Cost of goods completed and
transferred out 900,000 ± 400,000 +
± cost of goods transferred to the Finishing Department.
+ cost of goods transferred to finished goods.

75
The amount of work in process inventory of Rochelle Block at the end of
October must be:
a. P1,415,000
b. P 515,000
c. P 190,000
d. P1,225,000

Answer: A
Direct materials entered into production
(70,000 + 25,000) P 95,000
Direct labor (340,000 + 280,000) 620,000
Applied manufacturing overhead
(680,000 + 420,000) 1,100,000
Total production costs P1,815,000
Less: Cost transferred from finishing
department to finished goods ( 400,000)
Cost of work in process ending inventory P1,415,000

116. The following information pertains to Lando Co.’s P Division for the month
of April:
Number of units Cost of materials
Beginning work in process 15,000 P 5,500
Started in April 40,000 18,000
Units completed 42,500
Ending work in process 12,500

All materials are added at the beginning of the process. Using the first-
in, first-out method, the cost per equivalent unit for materials is
a. P0.59
b. P0.55
c. P0.45
d. P0.43

Answer: C
Unit cost for materials (18,000/40,000 units) = P0.45

117. Charisse Inc. manufactures a product, which goes through three

consecutive processes. Process I, Process 2 and Process 3. Data for the
month of July, 19x4 are as follows:

Process I Process 2 Process 3

Opening work in process P 16,000 P 26,000 P
4,000
Materials added 40,000 8,000
10,000
Conversion costs 20,000 20,000
32,000

76
Closing work in process 12,000 18,000 8,000

What was the value of the output transferred from process 3 to the
finished goods warehouse for the month of July?
a. P138,000
b. P130,000
c. P126,000
d. P38,000

Answer: A
Total costs placed in process:
Beginning work in process (16,000 + 26,000 + 4,000) P 46,000
Materials added (40,000 + 8,000 + 10,000) 58,000
Conversion costs (20,000 + 20,000 + 32,000) 72,000
Total P176,000
Less: Work in process ending inventory
(12,000 + 18,000 + 8,000) ( 38,000)
Cost of finished goods P138,000

118. For the month of May, the Cutting Department of D Co. had 80%
complete as to the work in process beginning and 50% complete as to
the ending work in process. Related data follow:

Units Conversion Costs

Work in process, May 1 50,000 P 88,000
Units started and costs incurred in May 270,000 572,000
Units completed and transferred to
next department in May 200,000

If the company were using FIFO method, the conversion cost of the work
in process in the Cutting Department at the end of May would amount to
a. P156,000
b. P254,000
c. P132,000
d. P176,000

Answer: A
Finished and transferred out 200,000
In process, end (120,000 x 50%) 60,000
In process, beginning (50,000 x 80%) ( 40,000)
Equivalent production 220,000
Costs P572,000
Unit cost P2.60

Conversion cost in work in process, end (60,000 x 2.60) P156,000

119. Department Tago has the following April production information:

77
Beginning work in process
24,000 units
Units started during the month 780,000 units
Units transferred to next department in April
744,000 units
Ending work in process (40% complete) 60,000 units
Beginning work in process costs P
120,000
April production cost P5,256,000
The unit cost of production is
a. P7.00
b. P20.22
c. P6.89
d. P6.69

Answer: A
Total Costs (120,000 + 5,256,000) P5,376,000
Equivalent production (744,000 + {60,000 x 40%}) 768,000 units
Unit cost (5,376,000/768,000) P7.00

120. Barnett Company adds materials at the beginning of the process in

department M. Conversion costs were 75% complete as to the 8,000
units in work in process at May 1, 19x2, and 50% complete as to the
6,000 units in work in process at May 31. During May, 12,000 units were
completed and transferred to the next department. An analysis of the
costs relating to work in process at May 1 and to production activity for
May is as follows:

Costs
Materials Conversion
Work in process, May 1 P 9,600 P 4,800
Cost added in May 15,600 14,400

Using the weighted-average method, the total cost per equivalent unit
for May was
a. P2.47
b. P2.50
c. P2.68
d. P3.16

Answer: C
Materials Conversion
Finished and transferred out 12,000 12,000
In process, end 6,000 3,000
Equivalent production 18,000 15,000
Costs P25,200 P19,200

78
Unit cost P1.40 P1.28 = P2.68

SPOILED UNITS – PROCESS COSTING

Questions 121 and 122 are based on the following:

Jethro Company manufatures top-of-the-line ice skates in a five-production-

department process. Department 3 had no beginning work in process inventory
and transferred in 18,000 units from Department 2, each with an equivalent unit
cost of P12.50. Within Department 3, unit costs for direct materials, direct labor,
and factory overhead (applied) were P8.00, P9.75, and P4.00, respectively. Direct
materials in Department 3 are added at the beginning. Department 3 has 4,800
units in ending work in process inventory which are 65% complete as to
conversion costs.

121. If 620 spoiled units were removed from Department 3 at Jethro’s

inspection point where conversion costs were 45% complete, what was
the total spoilage cost, assuming spoilage is handled as a separate
element of cost?
a. P 8,796.25
b. P11,325.25
c. P13,818.25
d. P16,546.25
Answer: D
Cost of spoiled units:
Transferred-in cost (620 x 12.50) P7,750
Direct materials (620 x 8) 4,960
Direct labor (620 x 45% x 9.75) 2,720.25
Applied factory overhead (620 x 45% x 4) 1,116
Total P16,546.25

122. At Jethro’s Department 3 inspection point, which is located halfway

through Department 3’s conversion process, 1,200 spoiled units were
removed from production. Normal spoilage was 800 units. If total spoilage
cost was P32,850, how much of that amount should be allocated to
ending inventory?
a. P0
b. P5,820
c. P7,320
d. P8,760

Answer: B
Cost of normal spoilage (800/1,200 x 32,850)
P21,900
OR
Transferred-in costs (800 x 12.50) P10,000

79
Direct materials (800 x 8) 6,400
Direct labor (800 x 50% x 9.75) 3,900
Applied factory overhead (800 x 50% x 4) 1,600
Total P21,900

Cost allocated to work in process, ending

Transferred-in cost (4,800/16,800 x 10,000)
P2,857
Direct materials (4,800/16,800 x 6,400) 1,829
Direct labor (3,120/15,120 x 3,900
805
Applied factory overhead (3,120/15,120 x 1,600)
330
Total P5,821

Transferred-in units from Department 2 18,000

Less: In process, end ( 4,800)
Spoiled units ( 1,200)
Finished and transferred out 12,000
units

Trans-In Materials Conversion

Finished and transferred out 12,000 12,000 12,000
In process, end 4,800 4,800 3,120
Equivalent units for normal
loss allocation 16,800 16,800 15,120

Questions 123 and 124 are based on the following:

APCO Company manufactures various lines of bicycles. Because of the high

volume of each type of product, the company employs a process cost system
using the weighted average method to determine unit costs. Bicycle parts are
manufactured in the Molding Department and transferred to the Assembly
Department where they are partially assembled. After assembly, the bicycle is
sent to the Packing Department.
Cost per unit data for the 20-inch dirt bike has been completed through the
Molding Department. Annual cost and production figures for the Assembly
Department are presented below.

Production Data
Beginning inventory (100% complete as to
transferred-in; 100% complete as to assembly material;
80% complete as to conversion) 3,000
units
Transferred in during the year (100% complete as to
transferred-in) 45,000 units

80
Transferred to Packing 40,000
units
Ending inventory (100% complete as to transferred-in;
50% complete as to assembly material; 20% complete
as to conversion) 4,000
units

Cost Data Transferred-In Direct Conversion

Materials Costs
Beginning inventory P 82,200 P 6,660 P
11,930
Current period 1,237,800 96,840 236,590

Damaged bicycles are identified on inspection when the assembly process is

70 percent complete; all assembly material has been added at this point of
the process. The normal rejection rate for damaged bicycles is 5 percent of
the bicycles reaching the inspection point. Any damage bicycles above the 5
percent quota are considered to be abnormal. All damage bikes are removed
from the production process and destroyed.

123. Compute the amount of the total production cost of P1,672,020 that will
be associated with normal damaged units.
a. P69,167
b. P65,793
c. P59,500
d. P74,228

Answer: A
In process, beginning 3,000 units
Transferred-in from Molding Department 45,000
Total to be accounted for 48,000 units
Transferred-out to Packing Department 40,000
In process, end 4,000
Spoiled units 4,000
Total units accounted for 48,000 units

Total units inspected:

Transferred-out to Packing Department (40,000 – 3,000)
37,000
Spoiled units 4,000
41,000
Normal spoiled units (41,000 x 5%) 2,050
Abnormal spoiled units 1,950
Total spoiled units 4,000 units

Trans-In Materials Conversion

Finished and transferred out 40,000 40,000 40,000
In process, end 4,000 2,000 800
81
Spoiled units – Normal 2,050 2,050 1,435
Abnormal 1,950 1,950 1,365
Equivalent production 48,000 46,000 43,600
Costs P1,320,000 P103,500 P248,520
Unit costs P27.50 P2.25 P5.70

Charged to normal damaged units:

Transferred in costs (2,050 x 27.50) P56,375
Materials costs (2,050 x 2.25) 4,612.50
Conversion costs (1,435 x 5.70) 8,179.50
Total P69,167

124. Compute the amount of the total production cost of P1,672,020 that will
be associated with abnormal damaged units.
a. P65,793
b. P69,167
c. P59,500
d. P60,732

Answer: A
Charged to FOC (abnormal loss)
Transferred-in costs (1,950 x 27.50) P53,625
Materials cost (1,950 x 2.25) 4,387.50
Conversion costs (1,365 x 5.70) 7,780.50
Total P65,793

125. A department adds material at the beginning of a process and identifies

defective units when the process is 40% complete. At the beginning of
the period, there was no work in process. At the end of the period, the
number of work in process units equalled the number of units transferred
to finished goods. If all units in ending work in process were 66 2/3%
complete, then ending work in process should be allocated
a. 50% of all normal defective unit costs.
b. 40% of all normal defective unit costs.
c. 50% of the material costs and 40% of the conversion costs of all
normal defective unit costs.
d. None of the normal defective unit costs.

Answer: A

126. I Company manufactures compact disks. In June 20x6, production for

2,000,000 units were started. At the end of the month, the following data
were gathered:
Completed units 2,700,000
Defective units 400,000
In process, 1/2 complete 800,000
How many units were in process at the beginning of the month?

82
a. 2,000,000
b. 2,300,000
c. 1,900,000
d. 1,500,000

Answer: C
Completed units 2,700,000
Defective units 400,000
In process, end 800,000
Total units placed in process 3,900,000
Less: Started in process 2,000,000
In process beginning 1,900,000

Questions 127 and 128 are based on the following

The Van Brocklin Company manufactures one style of long, tapered wax candle,
which is used on festive occasions. Each candle requires a two-foot-long wick
and one pound of a specially prepared wax. The wick and melted wax are placed
in molds and allowed to harden for twenty-four hours. Upon removal from the
molds, the candles are immediately dipped in a special coloring mixture that
gives a glossy lacquer finish. Dried candles are inspected, and all defective ones
are pulled out. Because the coloring mixtures penetrates into the wax itself, the
defective candles cannot be salvage for reuse. They are destroyed in a
incinerator. Normal spoilage is regarded as 3% of the number of candles that
pass inspection.
Cost and production statistics for a certain week follows:
Direct materials requisitioned (including wicks and wax)
P3,340.00
Direct labor and overhead cost (applied at a constant rate
during the hardening process) 1,219.50
Total cost P4,559.50

During the week, 7,800 candles were completed: 7,500 passed inspection, and
the remainder were defectives. At the end of the week, 550 candles were still in
the molds; they were considered 80% complete. There was no beginning
inventory.

127. The cost of the 7,500 candles that passed inspection must be:
a. P4,290.00
b. P4,125.00
c. P4,217.05
d. P4,238

Answer: D
Total candles completed 7,800
Total candles passed inspection 7,500

83
Spoiled candles 300

Normal spoilage (7,800 x 3%) 234

Abnormal spoilage 66
Total spoiled candles 300

Materials Conversion
Finished goods 7,500 7,500
In process, end 550 440
Normal spoilage 234 234
Abnormal spoilage 66 66
Equivalent production 8,350 8,240
Costs P3,340 P1,219.50
Unit cost P0.40 P0.148
Cost accounting:
Finished goods:
Original cost (7,500 x P0.548) P4,110
Cost of normal spoilage (234 x P0.548) 128
P4,238

128. The abnormal spoilage cost charged to factory overhead control must be:
a. P41.25
b. P165.00
c. P123.75
d. P36.17

Answer: D
Abnormal spoilage costs (66 x 0.548) P36.17

129. The Jake Department is the first of a two-stage production process.

Spoilage is identified when the units have completed the Jake process.
Costs of spoiled units are assigned to units completed and transferred to
the second department in the period spoilage is identified. The following
information concerns Jake’s conversion costs in May 20x7:

Units Conversion costs

Beginning work in process (50% complete) 2,000 P10,000
Units started during May 8,000 75,500
Spoilage - normal 500
Units completed and transferred 7,000
Ending work in process (80% complete) 2,500

Using the weighted average method, what was Jake’s conversion cost
transferred to the second production department?
a. P59,850
b. P64,125
c. P67,500
d. P71,250
84
Answer: C

Equivalent production
Units completed and transferred 7,000
Ending work in process (2,500 x 80%) 2,000
Spoilage – normal 500 9,500
Costs P85,500
Unit costs P9.00
Cost accounting:
Completed and transferred:
Original cost (7,000 x 9.00) P63,000
Add: Cost of normal spoilage (500 x 9.00)
4,500
P67,500

Items 130 and 131 are based on the following:

The manufacture of convenience foods such as potato chips and corn chips
proceeds through several departments. For example, Rochelle’s departmental
processes include cleaning, mixing, cooking, drying and packaging. At the end of
processing in each department, the units of product are inspected; only those
units that pass inspection are transferred out. The spoiled units (both normal
and abnormal) cannot be salvaged, have no scrap value and thrown away. The
company has rigid quality standards, so normal spoilage is relatively high.

Consider the Cooking Department. For simplicity, ignore transferred-in costs.

Below are data regarding a week’s production of barbecue flavor’s potato chips:
Costs applied to product:
Direct materials At the beginning of
processing
in the department
Conversion costs Evenly throughout entire period
of processing
Work in process, beginning
Number of units 600 cases
Percent complete 66-2/3%
Accumulated costs:
Direct materials P28,440
Conversion costs 31,200
Work in process, ending
Number of units 1,400 cases
Percent complete 50%
Good units complete 2,800 cases
Normal spoilage (detected by inspection of
product upon completion of processing) 140
cases
Abnormal spoilage

85
Number of units 60 cases
Percent complete 100%
Costs incurred during current period (exclusive of
accumulated costs of work in process, beginning)
Direct materials P198,000
Conversion costs 342,600
Assume the company uses the weighted-average method,

130. The cost of goods completed and transferred out:

a. P427,000
b. P436,150
c. P441,000
d. P448,321

Answer: D
Materials Conversion
Finished and transferred out 2,800 2,800
In process, end 1,400 700
Normal spoilage 140 140
Abnormal spoilage 60 60
Equivalent production 4,400 3,700
Costs P226,440 P373,800
Unit costs P51.46 P101.03
Cost accounting:
Finished and transferred out:
Original (2,800 x 152.49) P426,972
Cost of normal spoilage (140 x 152.49) 21,349
P448,321

131. The cost of the ending work in process:

a. P142,765
b. P183,960
c. P178,640
d. P151,905

Answer: A
Ending work in process inventory cost
Materials (1,400 x 51.46) P 72,044
Conversion (700 x 101.03) 70,721
P142,765

132. Ang Masigla Signs Company manufactures only for specific orders and
uses a standard cost system.
During one large order from the airport authority, an unusual number of
signs were spoiled. The normal spoilage rate is 10% of units started. The
point of first inspection is one-third through the process, the second is

86
two-thirds through the process and the final inspection is at the end of
the process. Other information about the job are as follows:
Signs started 1,000
Signs spoiled 150
Direct materials introduced at the beginning P200,000
Conversion costs for the job P400,000
Standard direct material cost per sign P180
Standard conversion cost per sign P360
Average point of spoilage is the 2/3 completion point.
The cost of abnormal spoiled goods is
a. P21,000
b. P81,000
c. P27,000
d. P63,000

Answer: A
Cost of abnormal spoilage:
Direct materials (50 x 180) P 9,000
Conversion costs (50 x 360 x 2/3) 12,000
Total P21,000

SPOILED GOODS – JOB ORDER COSTING

133. Fox Metal Works Inc. is a special order manufacturer of metal products.
Each period the company accumulates fairly large quantities of metal
shavings and trimmings from the products it manufactures. At least, once
a month, the scrap metals are sold to a local scrap metals dealer. This
month scrap sales for shavings and trimmings not traceable to any
particular jobs total P5,500. In addition, during the current year period
200 metal door facings were cut to an incorrect size on job number 492
and had to be replaced. Although the defective facings cannot be used on
job 492, they can be sold as salvage for P22.50 each. The cost of cutting
the 200 defective facings is:
Materials (1,200 square ft of sheet metal X P10 each)
P12,000
Labor (10 hours X P150 pr hour)
1,500
Factory overhead (10 hours X P450 per hour) 4,500
Total cost of scrap on job number 492 P18,000

The total amount remove from work in process account must be:
a. P18,000
b. P23,500
c. P4,500
d. P13,500

Answer: A
The entry to record the scrap sales must be:
87
Cash or Accounts Receivable 5,500
Scrap sales (miscellaneous income) 5,500

The entry to record spoiled goods must be:

Cash or Accounts Receivable (200 x 22.50) 4,500
Factory Overhead Control 13,500
Work in process 18,000

134. Procopio Inc. manufactures matches per the design and specification of
its clientele, and accordingly uses the job order cost system. In April,
20x6, it finished 50,000 pieces of Job Shangri-La at the cost of P0.50 per
unit for direct materials and P0.40 per unit for direct labor. Factory
overhead is applied at 100% of direct labor. Job Shangri-La incurred 500
defective units (considered normal) that had to be re-worked at a cost of
P0.10 per unit, in addition to the predetermined factory overhead.
Procopio treats normal defective work as part of the pre-determined
factory overhead rate. What is the total cost of work on the defective unit
and to what account should this be charged?
a. P50, work in process
b. P100, factory overhead control
c. P100, work in process
d. P50, factory overhead control

Answer: B
Cost of rework per unit:
Direct labor P0.10
Applied factory overhead (100% of direct labor) 0.10
Total costs P0.20

Total cost of rework (0.20 x 500 defective units) = P100, charged to

factory overhead because the predetermined factory overhead rate
include cost of re-work.

135. Assume that 50,000 units are put into production for Job 303 and the
total cost of production was P15,000,000. Normal spoilage for general
production is estimated to be 2.5%. At the completion of production, only
47,000 units were good. (The remaining units were spoiled and had a
salvage value of P70 each.) Management consider spoilage to be
inherent in nature to the general production process and includes normal
spoilage in the predetermined factory overhead application rate. When
accounting for the spoilage of Job 303, what is the total amount of costs
to be removed from work in process inventory?
a. P375,000
b. P900,000
c. P612,500
d. P497,500

88
Answer: B
The entry to record spoiled goods whether these are normal or abnormal
must be:
Spoiled Goods Inventory (3,000 x 70) 210,000
Factory Overhead Control (3,000 x 230) 690,000
Work in Process (3,000 x 300) 900,000

136. Henry Company’s Job 501 for the manufacture of 2,200 coats was
completed during August 20x6 at the following unit costs:
Direct materials
P20
Direct manufacturing labor
18
Factory overhead (includes an allowance
of P1 for spoiled work) 18
P56

Final inspection of Job 501 disclosed 200 spoiled coats which were sold
to a jobber for P6,000. Assume that the spoilage loss is attributable to
exacting specifications of Job 501 and is charged to this specific job.
What would be the unit cost of the good coats produced on Job 501?
a. P55.00
b. P57.50
c. P58.60
d. P61.60

Answer: B
Total costs of producing 2,200 units (55 x 2,200 units) P121,000
Less: Recoverable value of 200 spoiled goods 6,000
Remaining costs charged to the customer P115,000
Unit costs (115,000/2,000 units) P57.50
OR
Original cost of 2,000 units (2,000 x {56-1}) P110,000
Add: Unrecoverable cost of spoiled goods:
(200 x 55) – 6,000 5,000
Total cost charged to the customer P115,000

137. Assume that the spoilage loss is to be charged to all production run and
not to specific job, what would be the unit cost of the good coats
produced on Job 501?
a. P55.00
b. P57.50
c. P58.60
d. P56.00

Answer: D
Total cost including the allowance for spoiled goods = P56

89
138. EDSA Company generally has spoiled goods during each job. Costs are
assigned to normal spoilage at P50 per unit and abnormal spoilage at
P100 per unit. Disposal fees typically run P25 per item. EDSA has a policy
never to rework spoiled units. The company adheres to zero defect
quality products and believes that once a unit is damaged, it cannot be
reworked into a quality product. For the month just ended, it generated
500 units of abnormal spoilage for Job 404. The appropriate journal entry
to record this is
a. Dr. Loss from abnormal spoilage 50,000
Cr. Work in process - Job 404
50,000
b. Dr. Loss from abnormal spoilage 12,500
Cr. Work in process - Dept. A
12,500
c. Dr. Loss from abnormal spoilage 50,000
Cr. Work in process - Dept. A
50,000
d. Dr. Work in process - Job 404 12,500
Cr. Loss from abnormal spoilage 12,500

Answer: A
500 units x 100 = P50,000

139. The D. Hayes Cramer Company manufactures Product C, whose cost per
unit is P1 of (direct) materials, P2 of (direct) labor, and P3 of factory
overhead costs. During the month of May, 1,000 units of Product C were
spoiled. These units could be sold for 60 centavos each. Spoilage are
considered normal in the production process, hence company policy
charged spoilage costs to the specific job processed. The accountant said
that the entry to be made for these 1,000 lost or spoiled units could be
one of the following four:
a. Spoiled goods inventory 600
Work in process 600

b. Spoiled goods inventory 600

Factory departmental overhead control 5,400
Work in process 6,000

c. Spoiled goods inventory 600

Loss on spoiled goods 5,400
Work in process 6,000

d. Spoiled goods inventory 600

Accounts receivable 5,400
Work in process 6,000

Answer: A

90
The only amount removed from work in process account must be the
recoverable value of the
spoiled goods.

140. The D. Hayes Cramer Company manufactures Product C, whose cost per
unit is P1 of (direct) materials, P2 of (direct) labor, and P3 of factory
overhead costs. During the month of May, 1,000 units of Product C were
spoiled. These units could be sold for 60 centavos each. Spoilage are
considered abnormal in the production process, hence company policy
treat spoilage costs as period cost. The accountant said that the entry to
be made for these 1,000 lost or spoiled units could be one of the
following four:
a. Spoiled goods inventory 600
Work in process 600
b. Spoiled goods inventory 600
Factory departmental overhead control 5,400
Work in process 6,000
c. Spoiled goods inventory 600
Loss on spoiled goods 5,400
Work in process 6,000
d. Spoiled goods inventory 600
Accounts receivable 5,400
Work in process 6,000

Answer: B
The total amount removed from the work in process account must be the
total production cost.
Unrecoverable cost must be charged to factory overhead control.

91
JOINT AND BY-PRODUCT COSTING

141. Love Inc., manufactures four products: Brand W, Brand X, Brand Y, and
Brand Z. These products, each with significant sales value, are produced
simultaneously. The following information is utilized in order to allocate
the joint costs under a process cost system:
1) Brands W, X, Y and Z emerge at the end of processing in
Department 1. Brand Y is processed further in Department 2 and
then sold.
2) The final market values for all the products total P550,000.
3) The costs of the finished products total P375,000.
4) Additional processing costs in Department 2 total P50,000.
5) Percentage of the final total market value of all the products:
Brand W: 35%, Brand X: 15%, Brand Y: 30%, and Brand Z: 20%.

Calculate the joint cost allocated to Brand W using the market

(hypothetical) value method.
a. P131,250
b. P113,750
c. P144,375
d. P125,125

Answer: D
Total Joint Costs = P375,000 – P50,000 = P325,000
Final MV FPC HMV Joint Costs
W P192,500 - P192,500 P125,125
X 82,500 - 82,500 53,625
Y 165,000 P50,000 115,000 74,750
Z 110,000 110,000 71,500
Total P550,000 P50,000 P500,000 P325,000

142. .
Gasoline Heating Oils Kerosene
Total market value of
gallons sold P400,000 P285,000
P365,400
Market value per gallon P 10.00 P 6.00 P 7.00
Beginning inventory (gallons) 10,275 20,000 25,000

The above chart was used by the GET Rich Company for allocating
P450,000 of joint costs incurred in March x7 for Department A.

During March the company had no ending inventory. No additional

processing costs were incurred. The GET Rich Company uses a process
cost system.

92
If management decided to use the physical output method to allocate
joint costs, what would the joint cost for Gasoline?
a. P128,848
b. P116,034
c. P146,580
d. P158,440

Answer: D
Gasoline Heating Oils Kerosene
Total
Units sold:
P400,000/10 40,000
P285,000/6 47,500
P365,400/7 52,200
Less: Beginning
Inventory (10,275) (20,000) (25,000)
Units produced 29,725 27,500 27,200
84,425

Joint Cost for Gasoline = 29,725/84,425 x P450,000 = P158,440

143. Crusher Corporation drills oil wells to obtain crude oil and natural gas.
Last month, the company produced 100,000 gallons of crude oil and
15,750 cubic feet of natural gas. The crude oil sells for P550 per gallon
and the natural gas sells for P120 per cubic foot. After split-off the crude
oil and natural gas were processed further at costs of P4,004,400 and
P290,000, respectively. The direct labor joint costs relating to the four oil
wells were P2,500,000, P4,000,000, P8,801,000, and P3,300,000. Selling
expenses were P1,003,500 for crude oil and P150,000 for natural gas.
Administrative expenses were P500,000 for crude oil and P110,000 for
natural gas. The additional joint costs incurred before split-off were
P5,506,600. The ending inventory is 10,000 gallons of crude oil; there are
no beginning inventories. Crusher Corp. uses process costing to
accumulate cost.

Determine the net income if the net by-product income will be treated as
deduction from costs of goods sold of the main product.
a. P29,535,700
b. P26,724,500
c. P23,901,700
d. P24,035,700

Answer: D
Net by-product income (natural gas):
Sales (15,750 x 120) P1,890,000
Less: Further processing costs ( 290,000)
Selling expenses ( 150,000)
Administrative expenses ( 110,000
93
P1,340,000
Total production costs of main product
= 4,004,400 + 2,500,000 + 4,000,000 + 8,801,000
+ 3,300,000 + 5,506,600 = P28,112,0000
Net income:
Sales (90,000 x 550) P49,500,000
Cost of sales:
Production costs P28,112,000
Less: Ending inventory cost
28,112,000 x 10% 2,811,200
Cost of units sold P25,300,800
Less: Net by-product income ( 1,340,000) 23,960,800
Gross profit P25,539,200
Less: Selling expenses P1,003,500
Administrative expenses 500,000
1,503,500
Net income P24,035,700

Questions 144 through 147 are based on the following:

Hovart Corporation manufactures two products out of a joint process: Compod

and Ultrasene. The joint costs incurred are P2,500,000 for a standard production
run that generates 120,000 gallongs of Compod and 80,000 gallons of Ultrasene.
Compod sells for P20 per gallon while Ultrasene sells for P32.50 per gallon.

144. If there are no additional processing costs incurred after the split-off
point, calculate the amount of joint cost of each production run allocated
to Compod on a physical-units basis.
a. P1,500,000
b. P1,000,000
c. P1,200,000
d. P1,300,000

Answer: A
Joint cost to Compod = 120,000/200,000 x 2,500,000 = P1,500,000

145. If there are no additional processing costs incurred after the split-off
point, calculate the amount of joint cost of each production run allocated
to Ultrasene on a relative-sales-value basis.
a. P1,500,000
b. P1,000,000
c. P1,200,000
d. P1,300,000

Answer: D
Market value of:
Compod = 120,000 x P20 = P2,400,000

94
Ultrasene = 80,000 x P32.50 = 2,600,000
Total P5,000,000

Joint cost to Ultrasene = 2,600,000/5,000,000 x P2,500,000 = P1,300,000

146. Suppose the following additional processing costs are required beyond
the split-off point in order to obtain Compod and Ultrasene: P1.00 per
gallon for Compod and P11.00 per gallong for Ultrasene, calculate the
amount of joint cost of each production run allocated to Compod on a
net-realizable-value basis.
a. P1,200,000
b. P1,300,000
c. P1,425,000
d. P1,075,000

Answer: C
NRV Joint
Costs
Compod (20 – 1) x 120,000 P2,280,000 P1,425,000
Ultrasene (32.50 – 11) x 80,000 1,720,000 1,075,000
P4,000,000 P2,500,000

147. Suppose the following additional processing costs are required beyond
the split-off point in order to obtain Compod and Ultrasene: P1.00 per
gallon for Compod and P11.00 per gallong for Ultrasene. Suppose also,
Compod can be processed further into a product called Compodalene, at
an additional cost of P4.00 per gallon. Compodalene will be sold for
P26.00 per gallon by independent distributors. The distributor’s
commission will be 10% of the sales price. Should Hovart sell Compod or
Compodalene?
a. Compod because of an advantage of P240,000.
b. Compod because of an advantage of P72,000
c. Compodalene because of an advantage of P240,000.
d. Compodalene because of an advantage of P72,000.

Answer: B
Incremental revenue if further processed(26 x90%) – 20 x 120,000
P408,000
Incremental costs = additional processing costs (4 x 120,000)
480,000
Disadvantage of further processing Compodalene P
72,000

148. David Company produces joint products X and Y, together with by-
product W. X is sold at split-off, but Y and W undergo additional
processing. Production data pertaining to these products for the year
ended December 31, 19x are as follows:
X Y W Total
95
Joint costs: Variable P 88,000
Fixed 148,000
Separable costs: Variable P120,000 P 3,000
123,000
Fixed 90,000 2,000 92,000
Production in pounds 50,000 40,000 10,000 100,000
Sales price per pound P 4.00 P7.50 P1.10

There are no beginning or ending inventories. No materials are spoiled in

production. Variable costs change in direct proportion to production
volume. Joint costs are allocated to joint products to achieve the same
gross profit percentage for each joint product. Net revenue from by-
product W is deducted from production costs of the main products.
Determine the joint cost share of Product Y.
a. P176,000
b. P 54,000
c. P138,000
d. P 71,380

Answer: A
Net joint costs:
Joint costs (88,000 + 148,000) P236,000
Less: Net realizable value of by-product W:
Sales (10,000 x 1.10) P11,000
Less: Further processing costs
(3,000 + 2,000) 5,000 6,000
P230,000
Sales of joint products:
X (50,000 x 4) P200,000
Y (40,000 x 7.50) 300,000 P500,000
Less: Cost of sales:
Joint costs P230,000
Further processing costs
(120,000 + 90,000) 210,000 440,000
Gross profit P 60,000

Gross profit rate = 60,000/500,000 = 12%

X Y
Sales P200,000 P300,000
Less: Gross profit (12% of sales) 24,000 36,000
Cost of sales P176,000 P264,000
Less: Further processing cost - 210,000
Joint costs P176,000 P 54,000

149. Stevens Corp., is a chemical manufacturer that produces two main

products, Pepco-1 and Repke-3, and a by-product SE-5, from a joint
process. If the company had the proper facilities, it could process SE-5
further into a main product. The ratio of output quantities to input
96
quantity of direct material used in the joint process remains consistent
with the processing conditions and activity level.

The company currently uses the quantitative method of allocating

joint costs to the main products. The fifo inventory method is used to cost
the main products. The by-product is inventoried at its net revenue, and
this figure is used to reduce the joint production costs before the joint
costs are allocated to the main products.

Jerrick, the company’s controller, wants to implement the market

value method of joint cost allocation. He believes that inventoriable cost
should be based on each product’s ability to contribute to the recovery
of joint production cost. The market value of the by-product would be
treated in the manner it is treated under the quantitative method.

Data describing operations during November follow. The joint

cost of production amounts to P2,640,000 for November.

Main Products By-Product

Pepco-1 Repke-3 SE-5
Finished goods inventory in gallons on Nov. 1 20,000 40,000
10,000
November sales in gallons 800,000 700,000
200,000
November production in gallons 900,000 720,000
240,000
Sales value per gallon at split-off point P 2.00 P 1.50 P 0.55
* Additional processing cost after split-off P1,800,000 P720,000
-
Final sales value per gallon P 5.00 P 4.00
-
* Marketing costs of P0.05 per gallon will be incurred to sell the by-product.

Assuming the company adopts the market value method for internal
reporting purposes, calculate the joint cost allocated to main product
Pepco-1.
a. P1,575,000
b. P1,065,000
c. P1,400,000
d. P1,120,000

Answer: A
Net joint costs:
Total joint costs P2,640,000
Less: Net revenue of by-product (0.55 – 0.05) x 240,000
120,000
P2,520,000

97
Final Market Value Joint Costs
Pepco-1 (900,000 x 2) = P1,800,000 P1,575,000
Repke-3 (720,000 x 1.50) = 1,080,000 945,000
P2,880,000 P2,520,000

150. Using the above information, calculate the cost assigned to finished
goods ending inventory for Repke-3 under the market value method.
a. P 88,750
b. P 93,333
c. P450,000
d. P138,750

Answer: D

Total units sold 700,000

Less: Finished goods inventory Nov. 1 ( 40,000)
Production sold 660,000
Cost of producing Repke-3
Joint costs P 945,000
Further processing cost 720,000
Total P1,665,000
Cost of finished goods ending inventory:
P1,665,000/720,000 x (720,000 – 660,000) = P138,750

151. Chi Co. manufactures products A and B from a joint process. Sales value
at split-off was P700,000 for 10,000 units of A, and P300,000 for 15,000
units of B. Using the sale value at split-off approach, joint costs properly
allocated to A were P140,000. Total joint costs were
a. P 98,000
b. P200,000
c. P233,333
d. P350,000

Answer: B
Sales Value Ratio Joint Costs
A P 700,000 70% P140,000
B 300,000 30% 70,000
Total (140,000/70%) P200,000

152. Blessa Corporation operates an ore processing plant. A typical batch of

ore runs through the plant which yield three refined products: lead,
copper, and manganese. At the split-off point, the intermediate products
cannot be sold without further processing. The lead from a typical batch
will sell for P20,000 after incurring additional processing costs of P8,000.
The copper is sold for P40,000 after additional processing costs of P1,000.
The manganese yield sells for P30,000 but requires additional processing

98
costs of P6,000. Using the market value approach, the cost ratio is 80%.
The joint cost allocated to copper would be:
a. P44,000
b. P31,200
c. P 9,600
d. P11,200

Answer: B
Net realizable value
Lead (20,000 – 8,000) P12,000
Copper (40,000 – 1,000) 39,000
Manganese (30,000 – 6,000) 24,000
Total P75,000
Joint cost to copper (39,000 x 80%) P31,200

Questions 153 and 154 are based on the following:

Arlene Chemical Company manufactures two industrial chemical products in a

joint process. In May, 10,000 gallons of input costing P60,000 were processed at
a cost of P150,000. The joint process resulted in 8,000 pounds of Resoline and
2,000 pounds of Krypto. Resoline sells at P25 per pound and Krypto sells for P50
per pound. Management generally processes each of these chemicals further in
separable processes to produce more refined chemical products. Resoline is
processed separately at a cost of P5 per pound. The resulting product, Resolite,
sells for P35 per pound. Krypto is processed separately at a cost of P15 per
pound. The resulting product, Kryptite, sells for P95 per pound.

153. The joint cost share of product Kryptite using the net realizable value
method would be:
a. P126,000
b. P 84,000
c. P140,000
d. P 70,000

Answer: B
Total joint costs = 60,000 + 150,000 = P210,000
Net Realizable Value Joint Costs
Resolite (35 – 5) x 8,000 units = P240,000 P126,000
Kryptite (95 – 15) x 2,000 units = 160,000 84,000
P400,000 P210,000

154. Assuming that Arlene Chemical Company’s management is considering

an opportunity to process Kryptite further into a new product called
Omega. The separable processing will cost P40 per pound. Packaging
costs for Omega are projected to be P6 per pound, and the anticipated

99
sales price is P130 per pound. Should Kryptite be processed further into
Omega?
a. Yes, because of an advantage of P22,000.
b. No, because of a disadvantage of P22,000.
c. No, because of a disadvantage of P10,000.
d. Yes, because of an advantage of P10,000.

Answer: B
Incremental revenue of further processing:
Sales price of Omega P130
Sales price of Krytite 95
Additional revenue per unit P 35 x 2,000 pounds
P70,000
Incremental cost:
Additional processing costs (2,000 pounds x 40) P80,000
Packaging costs (2,000 pounds x 6) 12,000
92,000
Disadvantage of further processing into Omega
P22,000

155. Pendall Company manufactures products Dee and Eff from a joint
process. Product Dee has been allocated P2,500 of total joint costs of
P20,000 for the 1,000 units produced. Dee can be sold at the split-off
point for P3 per unit, or it can be processed further with additional costs
of P1,000 and sold for P5 per unit. If Dee is processed further and sold,
the result would be
a. A break-even situation.
b. An additional gain of P1,000 from further processing.
c. An overall loss of P1,000.
d. An additional gain of P2,000 from further processing.

Answer: B
Incremental revenue if further processed (5 – 3) x 1,000 units
P2,000
Incremental costs equal to further processing costs 1,000
Advantage of further processing P1,000

156. E & C Chemicals Company manufactures E1 and C5 from a joint process.

E1 has been allocated P50,000 of the joint costs of P125,000 for the
2,500 units produced. E1 can be sold at split-off point at P25 per unit or
additional processing costing P25,000 would be necessary to be able to
market the product at P38 per unit. Further processing
a. Should be done for an additional income of P7,500.
b. Should be done for an additional income of P10,000.
c. Should not be done due to loss of P12,500.
d. May or may not be done as it would not make any financial
difference.

100
Answer: A
Incremental revenue of further processing (38 – 25) x 2,500 units
P32,500
Incremental costs equal to further processing costs
25,000
Advantage of further processing P 7,500

157. Aileen Co. manufactures a major product that gives rise to a by-product
called May. May’s only separable cost is a P1 selling cost when a unit is
sold for P4. Aileen accounts for May’s sales by deducting the P3 net
amount from the cost of goods sold of the major product. There are no
inventories. If Aileen were to change its method of accounting for May
from a by-product to a joint product, what would be the effect on Aileen’s
overall gross margin?
a. No effect
b. Gross margin increases by P1 for each unit of May sold.
c. Gross margin increases by P3 for each unit of May sold.
d. Gross margin increases by P4 for each unit of May sold.

Answer: B
Change from by-product to joint product will produce increase in sales of
P4.00 per unit.
Treating May as by-product will decrease cost of sales by P3.00 per unit.
Therefore, as main product gross profit will increase by P4.00, as by-product
gross profit will only increase by P3.00, a difference of P1.00 for each unit of
May sold.

Items 158 and 159 are based on the following:

Gordon Company processes ore in Department 1, out of which come three

products, L, W, and X. Product L is processed further through Department 2.
Product W is sold without further processing. Product X is considered a by-
product and is processed further through Department 3. Costs in Department 1
are P800,000 in total; Department 2 costs are P100,000; Department 3 costs are
P50,000. Processing 600,000 pounds in Department 1 results in 50,000 pounds
of Product L, 300,000 pounds of Product W, and 100,000 pounds of Product X.
Product L sells for P10 per pound. Product W sells for P2 per pound. Product X
sells for P3 per pound. The company wants to make a net margin of 10% of sales
on Product X and also allows 25% for marketing costs.

158. Assume that after deducting the share of by-product on the joint cost
using the market value reversal cost method, the remaining joint cost for
main products L and W is allocated on the basis of volume of production.
The share of product L must be:
a. P 88,888
b. P561,429

101
c. P 93,571
d. P114,286

Answer: C
Joint costs to by-product X under the market value reversal cost method:
Selling price (100,000 x 3) P300,000
Less: Further processing costs ( 50,000)
Net margin desired (10% x 300,000) ( 30,000)
Marketing costs (25% x 300,000)
( 75,000)
Joint costs to by-product X P145,000

Remaining joint costs allocated to main products

(P800,000 – P145,000) = P655,000
Joint cost to main product L (50,000/350,000) x 655,000 = P93,571

159. Assume that a buyer is willing to buy all product L after split-off for P7.00.
Should the company accept the offer?
a. Yes, there will be an advantage of P50,000.
b. No, there will be a disadvantage of P50,000.
c. No, there will be a disadvantage of P100,000
d. Yes, there will be an advantage of P150,000.

Answer: B

Additional revenue of further processing

(10 – 7 ) x 50,000 pounds 150,000
Additional processing costs in Department 2 100,000
Advantage of further processing P 50,000

160. LP Inc. has two joint products Ababa and Dada, and uses the net
realizable value method of allocating joint costs. The total joint costs for
20x5 amounted to P300,000. During the year additional processing costs
after split-off were P160,000 for Ababa and P240,000 for Dada. LP
produced 16,000 units of Ababa and 8,000 units of Dada during the year.
The sales value of Ababa is P500 per unit and for Dada is P1,000 per unit.
The portion of joint costs allocated to Dada during the year would be:
a. P175,000
b. P180,000
c. P225,000
d. P150,000

Answer: D
Final Market Value Further PC NRV
Joint Costs
Ababa 16,000 units x 500 = P8,000,000 P160,000 P7,840,000
P150,769

102
Dada 8,000 units x 1,000 = P8,000,000 240,000 7,760,000
149,231
P15,600,000 P300,000

161. J Company manufactures two joint products (Ralin and Stalin). J produced
12,000 units of Ralin with an after split-off sales value of P45,000.
However, if Ralin were to be processed further, additional cost of P6,000
will be incurred but the sales value will increase to P60,000. J produced
6,000 units of Stalin with an after split-off sales value of P30,000.
However, if Stalin were to be further processed, additional cost of P3,000
will be incurred but the sales value will go up to P36,000. Under the
relative sales value at split-off approach, the allocation to Ralin from total
product cost is P27,000. What is the total joint product cost?
a. P75,000
b. P45,000
c. P27,000
d. P67,500

Answer: B
Relative sales
value at split-of Joint Costs
Ralin P45,000 P27,000
Stalin 30,000 18,000
P75,000 P45,000

Cost ratio must be (27,000/45,000) = 60%

Joint costs must be (75,000 x 60%) = P45,000

162. O Corporation manufactures liquid chemical A and B from a joint process.

Joint costs are allocated on the basis of relative-sales-value at split-off. It
costs P4,560 to process 500 gallons of product A and 1,000 gallons of
product B to the split-off point. The sales value at split-off is P10 per
gallon for product A and P14 for product B. Product B requires an
additional process beyond split-off at a cost of P1 per gallon before it can
be sold. What is O’s cost to produce 1,000 gallons of product B?
a. P3,360
b. P3,660
c. P4,040
d. P4,360

Answer: D
Total sales value at split off for:
Chemical A (500 x 10) P 5,000
Chemical B (1,000 x 14) 14,000
P19,000
Total cost to produce 1,000 gallons of Product B:
Joint costs share (14,000/19,000 x 4,560) P3,360

103
Further processing costs (1,000 x 1) 1,000
Total P4,360

163. Lindy Co., which began operations in 20x6, produces gasoline and a
gasoline-by product. The following information is available pertaining to
20x6 sales and production:
Total production costs to split-off point P120,000
Gasoline sales 270,000
By-product sales 30,000
Gasoline inventory, 12/31/x6 15,000
Additional by product costs: Marketing 10,000
Production 15,000
Lindy accounts for the by-product at the time of production. What are
Lindy’s 20x6 cost of gasoline and the by-product?
Gasoline By-product
a. P105,000 P25,000
b. P115,000 P0
c. P108,000 P37,000
d. P100,000 P0

Answer: B
Lindy’s accounting for the by-product at the time of production simply
means that the net realizable value of by-product is deducted from the
joint production cost of P120,000. Therefore no cost is allocated to the
by-product.

Total production costs to split-off P120,000

Less: Net revenue from the by-product:
By-product sales P30,000
Less: Additional by-product costs
(10,000 + 15,000) 25,000 5,000
Cost allocated to gasoline the main product P115,000

164. A company process raw material into products FI, F2 and F3. Each ton of
raw material produces five units F1, two units of F2, and three units of F3.
Joint processing costs to the split-off point are P15/ton. Further processing
results in the following per unit figures:
F1 F2 F3
Additional processing costs per unit P28 P30
P25
Selling price per unit 30 35 35

If joint costs are allocated by the net realizable value of finished product,
what proportion of joint costs should be allocated to FI?
a. 20%
b. 30%
c. 33 1/3%
d. 50%

104
Answer: A
Net Realizable Value
F1 (30 – 28) x 5 units P10
F2 (35 – 30) x 2 units 10
F3 (35 – 25) x 3 units 30
Total P50

Joint cost share of F1 = 10/50 = 20%

165. Jennifer Co. produces main products Mary Ann and Dave. The process
also yields by-product Carol. Net realizable value of by-product Carol is
subtracted from joint production cost of Mary Ann and Dave. The
following information pertains to production in July 20x6 at a joint cost of
P54,000:

Additional cost
Product Units produced Market value after split-of
Mary Ann 1,000 P 40,000 P 0
Dave 1,500 35,000 0
Carol 500 7,000 3,000

If Jennifer uses the net realizable value method for allocating joint cost,
how much of the joint cost should be allocated to product Mary Ann?
a. P18,800
b. P20,000
c. P26,667
d. P27,432

Answer: C
Net joint cost to Mary Ann and Dave:
Total joint costs P54,000
Less: Net revenue from by-product Carol (7,000 – 3,000) 4,000
P50,000

Joint cost to Mary Ann (40,000/75,000 x 50,000) = P26,667

166. Bert Company’s ending inventory are shown as follows:

Product A - 72 pcs. @ P20.00 P1,440.00
Product B - 120 pcs. @ P20.00 2,400.00

During the year, Bert manufactured 500 dozens of materials and

produced 60% product A and 40% product B. The selling price of Product
A is P500.00 a dozen, while Product B, P150.00 a dozen. Using a more
equitable basis of allocating the joint cost, the correct value of ending
inventory is:
a. P 3,600
b. P30,000

105
c. P 3,000
d. P 3,840

Answer: C
The more equitable method is the market value method.
Total joint costs (500 dozens x 12 per dozen x P20 per unit) P120,000
Allocation using the market value method:

Market value at split-of Joint Costs

Product A (500 x 60% x P500 per dozen) = P150,000 P100,000
Product B (500 x 40% x P150 per dozen) = 30,000 20,000
P180,000 P120,000
Cost of ending inventory:
Product A (100,000/3,600 units x 72 pcs.) P2,000
Product B (20,000/2,400 units x 120 pcs.) 1,000
Total P3,000

167. Rochelle, Inc. manufactures products P, Q, & R, from joint process.

Additional information is as follows:

P Q R Total
Units produced 4,000 2,000 1,000 7,000
Joint costs 36,000 ? ? 60,000
Sales value at split-off ? ? 15,000 100,000
Additional costs if further
processed 7,000 5,000 3,000 15,000
Sales value if further
processed 70,000 30,000 20,000 120,000
Assuming that joint costs are allocated using the relative sales value at
split-off approach, what were the joint costs allocated to product Q and
R?
a. P12,000 for Q and P12,000 for R.
b. P14,400 for Q and P9,600 for R
c. P15,000 for Q and P9,000 for R.
d. P16,000 for Q and P8,000 for R.

Answer: C
Cost ratio = 60,000/100,000 = 60%
Total Joint Costs P60,000
Allocated to:
P (given) P36,000
Q (60,000 – 36,000 – 9,000) 15,000
R (15,000 x 60%) 9,000

168. Asyong Company manufactures products F, G, and W from a joint

process. Joint costs are allocated on the basis of relative sales value at
split-off. Additional information for the June 20x1 production activity is as
follows:

106
F G W Total
Units produced 50,000 40,000 10,000 100,000
Joint costs ? ? ? P450,000
Sales value at split-off P420,000 P270,000 P60,000
P750,000
Additional costs if
processed further 88,000 30,000 12,000
130,000
Sales value if
processed further 538,000 320,000 78,000
936,000
Assuming that the 10,000 units of W were processed further and sold for
P78,000, what was Asyong’s gross profit on this sale?
a. P21,000
b. P28,500
c. P30,000
d. P66,000

Answer: C
Cost ratio = Joint Cost/Sales value at split-off = 450,000/750,000 = 60%
Gross profit on product W:
Sales value if processed further P78,000
Less: Cost of sales:
Joint costs (60,000 x 60%) P36,000
Further processing costs 12,000
48,000
Gross profit P30,000

169. Nonong’s Meat Corporation uses a process cost system and sells a
variety of cooked meat, skins and cuttings. Four joint products produced
out of the process are as follows:

Products Units Produced

Lit-Tid 1,000
Tad-Yang 9,000
Pang-A 400
Soup No. 5 5,100

The split-off point for these products occurs in Division B and the costs
incurred up to this point are: P20,000 for direct materials, P15,000 for
direct labor, and P7,000 for factory overhead. What are the joint cost
allocated to each of the joint products by using the physical output
method for Lit-tid and Tad-yang, respectively?
a. P1,000 and P9,000
b. P3,000 and P24,387
c. P20,000 and P15,000
d. P2,710 and P24,387

107
Answer: D
Units Produced Joint Costs
Lit-Tid 1,000 P 2,710
Tad-Yang 9,000 24,387
Pang-A 400 1,084
Soup No. 5 5,100 13,819
15,500 P42,000

170. Dr. David, a chemist, discovered mineral Zv. If Zv is correctly

decomposed by special laser decomposition techniques, it will produce
chemical Zv1 and another chemical known as David. Both chemicals
have great potential in the scientific community and are very
commercial. (The chemicals are hope to lead to the development of safe
hot-dog). Additional information concerning the chemicals appear as
follows:
Final Market Additional processing
Disposal
Units value per (Beyond joint costs)
Costs
Chemical Produced unit Cost per unit
Per Unit
Zv 4,000 P35 P 6 P7
David 3,800 43 11 5
If joint costs to produce Zv1 and David amounted to P82,200, using the
net realizable value method, what was the total production cost of
David?
a. P44,248.27
b. P86,048.27
c. P67,248.27
d. P83,868.68

Answer: B
Net Realizable Value Joint
Costs
Zv (35 – 6 – 7) = 24 x 4,000 units = P 88,000 P37,952
David (43 – 11 – 5) = 27 x 3,800 units = 102,600 44,248
P190,600 P82,200

Total production cost of David:

Joint costs P44,248
Further processing costs (3,800 x 11) 41,800
P86,048

ACTIVITY-BASED COSTING

Questions 171 and 172 are based on the following:

108
The Chromosome Manufacturing Company produces two products, X and Y. The
company president, Gene Mutation, is concerned about the fierce competition in
the market for product X. He notes that competitors are selling X for a price well
below Chromosome’s price of P12.70. At the same time, he notes that
competitors are pricing product Y almost twice as high as Chromosome’s price of
P12.50.
Mr. Mutation has obtained the following data for a recent time period:
Product X Product Y
Number of units 11,000 3,000
Direct materials cost per unit P3.23 P3.09
Direct labor cost per unit P2.22 P2.10
Direct labor hours 10,000 2,500
Machine hours 2,100 2,800
Inspection hours 80 100
Purchase orders 10 30

Mr. Mutation has learned that overhead costs are assigned to products on the
basis of direct labor hours. The overhead costs for this time period consisted of
the following items:
Overhead Cost Item Amount
Inspection costs P16,200
Purchasing costs 8,000
Machine costs 49,000
Total P73,200

171. Using the direct labor hours to allocate overhead cots, determine the
gross margin per unit for Product X
a. P1.394
b. P1.454
c. P4.505
d. P1.926

Answer: D
Selling price per unit P12.70
Cost per unit:
Direct materials cost P3.23
Direct labor cost 2.22
Overhead per unit:
(73,200/12,500 x 10,000)/11,000 units 5.324 10.774
Gross profit per unit P 1.926

172. Using the activity-based costing, determine the gross margin per unit for
Product X.
a. P1.454
b. P1.394
c. P4.505
d. P1.926

109
Answer: C
Selling price per unit
P12.70
Cost per unit:
Direct materials cost P3.23
Direct labor cost 2.22
Overhead per unit:
Inspection costs = (16,200/180 x 80)/11,000 units .654
Purchasing costs = (8,000/40 x 10)/11,000 units .182
Machine costs = (49,000/4,900 x 2,100)/11,000 units 1.909
8.195
Gross profit per unit P
4.505

173. Delerico Manufacturing Company makes a variety of backpacks. The

activity centers and budgeted information for factory overhead for the
year are:

Activity Center Overhead Costs Cost Driver Activity Center Rate

Materials Handling P 3,000,000 Weight of materials P 3.00 per pound
Cutting 13,000,000 Number of shapes P 30.00 per shape
Assembly 46,000,000 Direct labor hours P120.00 per labor
hour
Sewing 12,000,000 Machine hours P80.00 per machine
hour

Two styles of backpacks were produced in December, the EasyRider and

the Ovenighter. The quantities and other operating data for the month
are:
EasyRider Overnighter
Direct materials costs P150,000 P200,000
Direct labor cost P300,000 P
50,000
Direct materials weight in pounds 50,000
15,000
Number of shapes 35,000
15,000
Assembly direct labor hours 7,500 1,200
Sewing machine hours 12,500 1,800
Units produced 5,000 1,000

Calculate the cost per unit for each backpack.

a. EasyRider, P620; Overnighter, P783
b. EasyRider, P783; Overnighter, P620
c. EasyRider, P1,232; Overnighter, P1,240
d. EasyRider, P710; Overnighter, P1,033

Answer: D

110
EasyRider Overnighter
Direct materials costs P 150,000 P
200,000
Direct labor cost 300,000 50,000
Overhead cost:
Materials Handling = 3 x 50,000 150,000
= 3 x 15,000 45,000
Cutting = 30 x 35,000 1,050,000
= 30 x 15,000 450,000
Assembly = 120 x 7,500 hrs 900,000
= 120 x 1,200 hrs
144,000
Sewing = 80 x 12,500 hrs 1,000,000
= 80 x 1,800 hrs
144,000
Total cost P3,550,000 P1,033,000
Units produced 5,000 1,000
Cost per unit P 710 P
1,033

Questions 174 and 175 are based on the following:

The Tracy Corporation has a machining facility specializing in jobs for the aircraft
components market. The prior job-costing system had two direct-cost categories
(direct materials and direct manufacturing labor) and a single indirect-cost pool
(manufacturing overehead, allocated using direct labor-hours). The indirect cost-
allocation rate of the prior system for 20x4 would have been P1,150 per direct
manufacturing labor-hour.

Recently, a team with members from product design, manufacturing and

accounting used an activity-based approach to refine its job-costing system. The
two direct-cost categories were retained. The team decided to replace the single
indirect-cost pool with five indirect-cost pools. These five cost pools represent
five activity areas at the facility, each with its own supervisor and budget
responsibility. Pertinent data are as follows:
Cost Driver Used Cost-Allocation
Activity Area as Allocation Base Rate
Materials handling Parts P 4.00
Lathe work Turns 2.00
Milling Machine-hours 200.00
Grinding Parts 8.00
Testing Units tested 150.00

Information-gathering technology has advanced to the point where all the data
necessary for budgeting in these five activity areas are automatically collected.

Two representative jobs processed under the new system at the facility in the
most recent period had the following characteristics:

111
Job 410
Job 411
Direct materials cost per job P97,000
P599,000
Direct manufacturing labor cost per job 7,500
112,500
Direct manufacturing labor-hours per job 25
375
Parts per job 500
2,000
Turns per job 20,000
60,000
Machine hours per job 150
1,050
Units per job 10
200

174. Compute the per unit manufacturing cost of job 410 under the prior job-
costing system.
a. P13,325
b. P5,713.75
c. P18,200
d. P5,477.50

Answer: A
Direct materials cost P 97,000
Direct manufacturing labor cost 7,500
Factory overhead cost (1,150 x 25) 28,750
Total cost of Job 410 P133,250
Unit Cost = P133,250/10 = P13,325

175. Compute the per unit manufacturing cost of job 411 under the activity-
based job-costing system.
a. P13,325
b. P18,200
c. P5,713.75
d. P5,477.50

Answer: D
Direct materials costs P 599,000
Direct manufacturing labor cost 112,500
Factory overhead
Materials Handling = 4 x 2,000
8,000
Lathe work = 2 x 60,000 120,000
Milling = 200 x 1,050 210,000
Grinding = 8 x 2,000 16,000

112
Testing = 150 x 200 30,000
Total manufacturing cost – Job 411 P
1,095,500
Cost per unit = P1,095,500/200 units = P5,477.50

Questions 176 through 178 are based on the following:

Madison Electric Motor Corporation manufactures electric motors for commercial

use. The company produces three models, designated as standard, deluxe, and
heavy-duty. The company uses a job-order cost accounting system with
manufacturing overhead applied on the basis of direct-labor hours. The system
has been in place with little change for 25 years. Product costs and annual sales
data are as follows:

Standard Deluxe Heavy-Duty

Model Model Model
Annual sales (units) 20,000 1,000 10,000
Product costs:
Raw material P10 P25 P42
Direct labor 10 (.5 hr. 20 (1 hr. 20 (1 hr.
at P20) at P20) at P20)
Manufacturing overhead * 85 170
170
* Calculation of predetermined overhead rate:

Manufacturing overhead budget:

Depreciation, machinery
P1,480,000
Maintenance, machinery
120,000
Depreciation, taxes and insurance for factory
300,000
Engineering 350,000
Purchasing, receiving and shipping
250,000
Inspection and repair of defects 375,000
Material handling
400,000
Miscellaneous manufacturing overhead costs
295,000
Total P3,570,000
Direct labor budget:
Standard model 10,000 hours
Deluxe model 1,000 hours
Heavy-duty model 10,000 hours
Total 21,000 hours

113
Predetermined overhead rate:

Budgeted overhead P3,570,000

---------------------------------- = --------------- = P170 per hour
Budgeted direct labor hours 21,000 hours

For the past 10 years Madison’s pricing formula has been to set each
product’s target price at 110 percent of its full product cost. Recently, however,
the standard model motor has come under increasing price pressure from
offshore competitors. The result was that the price on the standard model ha
been lowered to P110.
The company president recently asked the controller, “Erin, why can’t we
compete with these other companies? They’re selling motors just like our
standard model for 106 pesos. That’s only a buck more than our production cost.
Are we really that inefficient? What gives?”
The controller responded by saying, “I think this is due to an outmoded
product-costing system. As you may remember, I raised a red flag about our
system when I came on board last year. But the decision was to keep our current
system in place. In my judgment, our product-costing system is distorting our
product costs. Let me run a few numbers to demonstrate what I mean.”
Getting the president’s go-ahead, the controller compiled the basic data
needed to implement an activity-based costing system. This data is displayed in
the following table. The percentages are the proportion of each cost driver
consumed by each product line.
Product Lines
Cost Standard Deluxe Heavy-
Duty
Activity Cost Pool Driver Model Model
Model
I: Depreciation, machinery Machine time 40% 13%
47%
Maintenance, machinery
II: Engineering Engineering hours 47% 6%
47%
Inspection and repair of defects
III: Purchasing, receiving and shipping Number of 47% 8% 45%
Material handling material orders
IV: Depreciation, taxes and Factory space 42% 15%
43%
Insurance for factory usage
Miscellaneous manufacturing
Overhead

176. Compute the target price per unit for standard model based on the
traditional, volume-based product costing system.
a. P115.50
b. P236.50
c. P255.20
d. P105.00

114
Answer: A
Raw material P 10
Direct labor 10
Manufacturing overhead 85
Total P105
Target price = 105 x 110% = P115.50

177. Compute the new product costs per unit for the heavy-duty model based
on the new data collected by the controller.
a. P164.11
b. P392.75
c. P76.8075
d. P226.11

Answer: D
Raw materials P 42.00
Direct labor 20.00
Manufacturing overhead:
Depreciation, machinery ( 1,480,000 x 47%)/10,000 units
69.56
Maintenance, machinery (120,000 x 47%)/10,000 units 5.64
Depreciation, taxes and insurance for factory
(300,000 x 43%)/10,000 units 12.90
Engineering (350,00 x 47%)/10,000 units
16.45
Purchasing, receiving and shipping (250,000 x 45%)/10,000 units
11.25
Inspection and repair of defects (375,000 x 47%)/10,000 units
17.625
Material handling (400,000 x 45%)/10,000 units
18.00
Miscellaneous manufacturing overhead costs
(295,000 x 43%)/10,000 units 12.625
Total P226.11

178. Calculate the new target price per unit for deluxe model based on the
activity based costing system.
a. P432.025
b. P481.525
c. P106.488
d. P248.721

Answer: B
Raw materials P 25.00
Direct labor 20.00
Manufacturing overhead:
Depreciation, machinery (1,480,000 x 13%) P192,400

115
Maintenance, machinery (120,000 x 13%) 15,600
Depreciation, taxes and insurance factory
(300,000 x 15%) 45,000
Engineering (350,000 x 6%) 21,000
Purchasing, receiving and shipping (250,000 x 8%) 20,000
Inspection and repair of defects (375,000 x 6%) 22,500
Material handling (400,000 x 8%) 32,000
Miscellaneous manufacturing overhead costs
(295,000 x 15%) 44,250
Total P392,750
Manufacturing overhead per unit (392,750/1,000 units)
392.75
Total P437.75
Target price = 437.75 x 110% = P481.525

Questions 179 and 180 are based on the following:

Sherwin Company produces two products, Fancy and Plain, and uses a costing
system in which all overhead is accumulated in a single cost pool and allocated
based on direct labor hours. Sherwin’s management had decided to implement
ABC, because a cost study has revealed significant amounts of overhead cost
related to setup activity and design activity. The number of setups and the
number of design hours will be activity drivers for the two new cost pools, and
direct labor hours will continue as the base for allocating all remaining overhead.
Selected information for Sherwin Company’s most recent year of operations is as
follows:

Fancy Plain Total

Units produced 200 16,000 16,200
Direct material cost:
Per unit P 300 P10
Total P 60,00 P160,000 P220,000
Direct labor:
Hours 2,800 27,200 30,000
Cost P28,000 P272,000 P300,000
Setups 45 45 90
Design hours 3,000 5,000
8,000

Overhead: Total
Setup related P 135,000
Design related 240,000
Other 825,000
Total overhead P1,200,000

179. Calculate the total cost reported for Fancy by the existing costing system.

116
a. P 322,500
b. P1,397,500
c. P 112,000
d. P 200,000

Answer: D
Direct materials P 60,000
Direct labor 28,000
Manufacturing overhead
(1,200,000/30,000) x 2,800 112,000 P200,000

180. Calculate the per unit costs reported for Plain by the ABC system.
a. P1,612.50
b. P 87.34
c. P 95.00
d. P 60.34

Answer: B
Direct materials P 160,000
Direct labor 272,000
Manufacturing overhead:
Setup related (135,000/90) x 45 setups 67,500
Design related (240,000/8,000) x 5,000 hrs. 150,000
Other (825,000/30,000) x 27,200 hrs. 748,000
Total P1,397,500
Per unit cost = P1,397,500/16,000 units = P87.34

181. David Corporation has used a traditional cost accounting system to apply
quality control costs uniformly to all products at a rate of 15% of direct
labor cost. Monthly direct labor cost for its main product is P30,000. In an
attempt to distribute quality control costs more equitably, David is
considering activity-based costing (ABC). The monthly data shown below
have been gathered for the main product. The three activities are (1)
incoming materials inspection, (2) in-process inspection, and (3) product
certification. Costs are to be allocated to each activity on the basis of cost
drivers.
Quantity for
Activity Cost Driver Cost Rate
Main Product
(1) Number of types of materials P12 per type 12 types
(2) Number of units P0.14 per unit 17,500
units
(3) Number of orders P77 per order 30 orders

The monthly quality control cost assigned to the main product using ABC
is
a. P150 per order.

117
b. P404 lower than using the traditional system.
c. P4,500
d. P404 higher than using the traditional system.

Answer: D
Under traditional costing (30,000 x 15%) P4,500
Under activity-based costing:
Incoming materials inspection (12 x 12 types) P 144
In-process inspection (0.14 x 17,500 units) 2,450
Product certification (77 x 30 orders) 2,310 4,904
Difference (ABC higher than traditional)
P 404

Questions 182 and 183 are based on the following:

Believing that its traditional cost system may be providing misleading

information, an organization is considering an activity-based costing (ABC)
approach. It now employs a full cost system and has been applying its
manufacturing overhead on the basis of machine hours.

The organization plans on using 50,000 direct labor hours and 30,000 machine
hours in the coming year. The following data show the manufacturing overhead
that is budgeted.

Activity Cost Driver Budgeted Activity Budgeted Costs

Material handling No. of parts handled P6,000,000 P
720,000
Setup costs No. of setups 750
315,000
Machining costs Machine hours 30,000
540,000
Quality control No. of batches 500 225,000
Total manufacturing overhead costs
P1,800,000

Cost, sales, and production data for one of the organization’s products for the
coming year are:
Prime costs:
Direct materials cost per unit P4.40
Direct labor cost per unit (.05 DLH @ P15.00/DLH) .75
Total prime cost P5.15
Sales and production data:
Expected sales 20,000 units
Batch size 5,000
units
Setups 2 per batch

118
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch

182. If the organization uses the traditional full cost system, the cost per unit
for the product for the coming year will be
a. P5.39
b. P5.44
c. P6.11
d. P6.95

Answer: C
Direct materials cost per unit P4.40
Direct labor cost per unit .75
Manufacturing overhead
(1,800,000/30,000 hrs) x 80 MH x 4 batches
= 19,200/20,000 units .96
Total unit cost – traditional costing P6.11

183. If the organization employs an activity-based costing system, the cost per
unit for the product described for the coming year will be
a. P6.00
b. P6.08
c. P6.21
d. P6.30

Answer: D
Direct materials cost per unit
P4.40
Direct labor cost per unit .75
Manufacturing overhead:
Materials handling (720,000/6,000,000 x 5 parts) P0.60
Setup costs (315,000/750 x 2 per batch)/5,000 units 0.168
Machining costs (540,000/30,000 x 80 MH)/5,000 units 0.288
Quality control (225,000/500/5,000 units) 0.09
1.146
Total unit cost – ABC costing P6.296

184. Factory Company makes two products, X and Z. X is being introduced this
period, whereas Z has been in production for 2 years. For the period
about to begin, 1,000 units of each product are to be manufactured.
Assume that the only relevant overhead item is the cost of engineering
change orders; that X and Z are expected to required eight and two
change orders, respectively; that X and Z are expected to require 2 and 3
machine hours, respectively; and that the cost of a change order is P600.
If Factory applies engineering change order costs on the basis of machine
hours, the cross-subsidy per unit arising from the peanut-butter costing
approach is

119
a. P1.20
b. P2.40
c. P3.60
d. P4.80

Answer: B
Cost of change orders = (8+2) = 10 change orders x P600/per change order
= P6,000.
Product X Product Y
Change orders
8/10 x 6,000 P4,800
2/10 x 6,000 P1,200
Machine hours
2/5 x 6,000 2,400
3/5 x 6,000 3,600
Difference P2,400 P2,400
Cross-subsidy per unit = P2,400/1,000 units = P2.40

185. ALF Company is an assisted-living facility that provides services in the

form of residential space, meals, and other occupant assistance (OOA) to
its occupants. ALF currently uses a traditional cost accounting system
that defines the service produced as assisted living, with service output
measured in terms of occupant days. Each occupant is charged a daily
rate equal to ALF’s annual cost of providing residential space, meals, and
OOA divided by total occupant days. However, an activity-based costing
(ABC) analysis has revealed that occupants’ use of OOA varies
substantially. This analysis determined that occupants could be group
into three categories (low, moderate, and high usage of OOA) and that
the activity driver of OOA is nursing hours. The driver of the other
activities is occupant days. The following quantitative information was
also provided:
Occupant Annual Annual
Category Occupant Days Nursing Hours
Low usage 36,000 90,000
Medium usage 18,000 90,000
High usage 6,000 120,000
60,000 300,000

The total annual cost of OOA was P7.5 million, and the total annual cost
of providing residential space and meals was P7.2 million. Accordingly,
the ABC analysis indicates that the daily costing rate should be
a. P182.50 for occupants in the low-usage category.
b. P145.00 for occupants in the medium-usage category.
c. P245.00 for occupants in the high-usage category.
d. P620.00 for all occupants.

Answer: A
Low Usage Medium Usage High Usage
120
Other occupant assistance
7.5 M/300,000 x 90,000 P2,250,000 P2,250,000
7.5 M/300,000 x 120,000 P3,000,000
Residential space and meals
7.2 M/60,000 x 36,000 4,320,000
7.2 M/60,000 x 18,000 2,160,000
7.2 M/60,000 x 6,000
720,000
Total P6,570,000 P4,410,000 P3,720,000
Annual Occupant Day s 36,000 18,000
6,000
Daily costing rate P182.50 P245.00
P620.00

186. Hoger Corporation accumulated the following cost information for its two
products, A and B:
A B Total
Production volume 2,000 1,000
Total direct manufacturing
labor hours 5,000 20,000 25,000
Set-up cost per batch P 1,000 P 2,000
Batch Size 100 50
Total set-up costs incurred P20,000 P40,000 P60,000
Direct manufacturing labor hour per unit 2 1

A traditional costing system would allocate set-up costs on the basis of

direct manufacturing labor hours. An ABC system would trace costs by
spreading the costs per batch over the units in a batch. What is the set-
up cost per unit of product A under each costing system?
Traditional ABC
a. P4.80 P 10.00
b. P2.40 P 10.00
c. P40.00 P200.00
d. P4.80 P 20.00

Answer: A
Traditional costing method (60,000/25,000 hrs x 2 hrs per unit) P
4.80
ABC costing method (20,000/2,000 units) 10.00

187. Bowie Inc., a manufacturer of earnings, has accumulated the following

cost information for products A and B:
A B Total
Production Volume 500 1,000
Engineering Costs Incurred P2,000 P3,000
P5,000
Engineering Costs per Batch P 800 P1,500
Batch Size 200 500

121
Total Direct Labor Hours 750 1,400
2,150
Direct Labor Hours/unit 1.5 1.4

Assuming ABC is used, what is the engineering cost per unit for products
A and B?
A B
a. P3.49 P3.26
b. P1.60 P1.50
c. P10.00 P6.00
d. P4.00 P3.00

Answer: D
Product A (P2,000/500 units) P4.00
Product B (P3,000/1,000 units) 3.00

BACKFLUSH COSTING

188. Rochester Plumbing Fixtures Corporation manufactures a wide range of

plumbing fixtures for the housing construction industry. The company
recently adopted backflush costing. The following events occurred in
April.
1. Raw material costing P300,000 was purchased on account.
2. Direct-labor costs of P165,000 and actual manufacturing overhead
costs of P370,000 were incurred. These amounts have not yet been
paid in cash.
3. Conversion costs of P540,000 were applied to finished products.
These goods included raw material costing P300,000.
4. Goods costing P840,000 were sold for P1,000,000 on account.
5. Overapplied or underapplied conversion costs were closed into Cost
of Goods Sold.

The entry to record the cost of goods manufactured must be:

a. Finished Goods Control 840,000
Accounts Payable Control 300,000
Conversion Costs Applied 540,000

b. Finished Goods Control 835,000

Raw & In Process Control 300,000
Conversion Costs Incurred 535,000

c. Finished Goods Control 840,000

Work in Process Control 840,000

d. Finished Goods Control 840,000

Raw & In Process Control 300,000
Conversion Costs Applied 540,000

122
Answer: D

189. The following events pertain to Barracuda Beach Wear, Inc. during June,
20x2.
2. Raw material costing P180,000 was purchased on account.
3. Direct-labor costs of P65,000 were incurred, but not yet paid in cash.
Actual manufacturing overhead costs of P105,000 also were
incurred, but not yet paid in cash.
4. Goods with raw material costs of P180,000 were finished, and
conversion costs of P170,000 were applied.
5. Goods costing P348,000 were sold on account for P420,000.

Prepare the entry to record the no. 1 transaction using backflush costing.
a. Purchases 180,000
Accounts Payable 180,000
b. Materials Inventory 180,000
Accounts Payable 180,000
c. Raw and In-Process Inventory 180,000
Accounts Payable 180,000
d. Work in Process Inventory 180,000
Accounts Payable 180,000

Answer: C

190. VideoFun Corporation manufactures video games. The firm has been
using an actual-costing system, in which the actual cost of direct
material, direct labor, and manufacturing overhead are entered into work
in process. On January 1, the company switched to backflush costing.

Thefollowing events occurred during January.

1. Electronic components were purchased on account for P203,000.
2. Production-line employees earned wages of P110,000.
3. Production supervisory salaries amounted to P15,000.
4. Machine-repair personnel earned wages of P8,000.
5. Utility bills amounting to P29,000 were paid.
6. Depreciation on the factory building and equipment amounted to
P90,000.
7. Other overhead costs of P60,000 were incurred and paid for in cash.
8. The products that were finished in January included raw materials
costing P200,000. Conversion costs of P312,000 were applied.
9. The products sold in January had recorded product costs of
P500,000. These products were sold for P580,000 on account.

What is the entry to record the cost of goods manufactured under the
backflush costing?
a. Finished goods inventory 512,000
Work in process inventory 512,000
b. Finished goods inventory 512,000

123
Accounts payable 200,000
Conversion costs incurred 312,000
c. Finished goods inventory 512,000
Raw and In-Process inventory 200,000
Conversion costs applied 312,000
d. Finished goods inventory 512,000
Accounts payable 200,000
Conversion costs allocated 312,000

Answer: C

Questions 191through 195 are based on the following information.

A company that manufactures a single product uses backflush costing. At the

beginning of the period, there were no inventories. During the period, 40,000
units were produced, of which 39,000 were sold. The standard unit direct
materials and conversion costs for the period were P30 and P18, respectively.
the actual unit direct materials and conversion costs for the period were P29 and
P20, respectively. furthermore, any under- or overapplied conversion cost is not
prorated between cost of goods sold and finished goods but materials price
variances are recognized. Materials efficiency variances should be disregarded.
The following additional information is also available for the period:

Direct materials purchased (actual cost of materials

Sufficient to produce 42,000 units P1,218,000
Direct materials used (standard cost) 1,200,000
Conversion costs incurred (actual cost) 800,000

191. Assume the company’s backflush accounting system records the

purchase of direct materials and the completion and sale of finished
goods. The entry for the purchase of direct materials is
a. Inventory control P1,260,000
Accounts payable control
P1,260,000
b. Raw and in-process inventory control P1,218,000
Accounts payable control
P1,218,000
c. Raw and in-process inventory control P1,260,000
Accounts payable control
P1,218,000
Direct materials price variance 42,000
d. No entry.

Answer: B

192. Assume the company’s backflush accounting system records the

purchase of direct materials and the completion and sale of finished
goods. The entry to record finished goods is

124
a.Finished goods control P1,920,000
Raw and in-process inventory control P1,200,000
Conversion costs applied
720,000
b. Finished goods control P1,960,000
Raw and in-process inventory control P1,160,000
Conversion costs applied
800,000
c. Finished goods control P2,000,000
Accounts payable control
P1,200,000
Conversion costs control
800,000
d. No entry.

Answer: A

193. Assume the company’s backflush accounting system records the

purchase of direct materials and the completion and sale of finished
goods. The entry to record the under-or overapplied conversion costs:
a. Conversion costs applied P720,000
Cost of goods sold 78,000
Finished goods 2,000
Conversion costs control
P800,000
b. Conversion costs applied P800,000
Cost of goods sold P 80,000
Conversion costs control
720,000
c. Conversion costs control P800,000
Cost of goods sold P 78,000
Finished goods 2,000
Conversion costs applied 720,000
d. Conversion costs applied P720,000
Cost of goods sold 80,000
Conversion costs control
P800,000

Answer: D

194. Assume the company’s backflush system records the purchase of direct
materials and the sale but not the completion of finished goods. The
entry to record the sale of finished goods is:
a. Cost of goods sold P1,872,000
Finished goods control P1,872,000
b. Cost of goods sold P1,872,000

125
Inventory control
P1,170,000
Conversion costs applied
702,000
c. Inventory control P1,911,000
Cost of goods sold P1,911,000
d. Cost of goods sold P1,911,000
Accounts payable control
P1,131,000
Conversion costs applied
780,000

Answer: B

195. Assume the company’s backflush system records the purchase of direct
materials and the sale but not the completion of finished goods. The
entry to record under- or overapplied conversion costs is
a. Conversion costs applied P720,000
Cost of goods sold 80,000
Conversion costs control
P800,000
b. Conversion costs control P800,000
Cost of goods sold P 80,000
Conversion costs applied
720,000
c. Conversion costs applied P702,000
Cost of goods sold 98,000
Conversion costs control
P800,000
d. Conversion costs control P800,000
Cost of goods sold P 98,000
Conversion costs applied
702,000

Answer: C

STANDARD COSTING

Questions 196 and 197 are based on the following:

Mark, the cost accountant for Billings Plastics, Inc., has provided you with actual
and standard cost data for one of the basic product lines for the month of
February.
Direct materials Direct labor
Purchased and used at actual cost,
38,000 units P104,500

126
Actual direct labor payroll
P63,000
Standard materials units per product unit 2
Standard labor time per product unit 20 minutes
Standard price per unit of materials P2.50
Standard direct labor rate per hour P10
Labor rate variance (unfavourable) P6,000
During February, 18,000 units of product were manufactured.

196. Determine the entry to record direct materials charged to production

under the standard costing system.
a. Work in Process 90,000
Material Qty Variance 5,000
Materials 95,000
b. Work in Process 90,000
Materials 90,000
c. Work in Process 104,500
Material Qty Variance 9,500
Materials 95,000
d. Work in Process 95,000
Materials 95,000

Answer: A
The debit to work in process account must be the total standard material
costs of 18,000 units produced multiply by 2 materials per unit multiply by
P2.50 per material. (18,000 x 2 x 2.50) = P90,000. The material used is
38,000 units but the standard quantity allowed is just 36,000, therefore,
there is an unfavourable quantity variance of 5,000 (38,000 – 36,000 x
2.50).

197. Prepare the entry to record direct labor charged to production under the
standard costing system.
a. Work in Process 63,00
Payroll 63,000
b. Work in Process 60,000
Labor Rate Variance 6,000
Labor Efficiency Variance 3,000
Payroll 63,000
c. Work in Process 60,000
Labor Rate Variance 3,000
Payroll 63,000
d. Work in Process 57,000
Labor Rate Variance 6,000
Payroll 63,000

127
Answer: B
The debit to work in process account must be the total standard direct labor
cost of 18,000 units produced multiply by 20 minutes or 1/3 hr per unit
multiply by P10 standard direct labor rate. (18,000 x 1/3 x P10) = P60,000.
There is an unfavourable rate variance of P6,000 given in the problem and
labor efficiency variance favourable of P3,000, the balancing figure.

198. N Co. uses a standard process cost system for all its products. All
inventories are carried at standard. Inventories and cost of goods sold are
adjusted for financial statement purposes for all variances considered
material in amount at the end of the fiscal year. All products are
considered to flow through the manufacturing process to finished goods
and ultimate sale in a first-in, first-out pattern.
The standard cost of one of N’s products is as follows:
Materials P2
Direct labor (.5 DHL @ P8) 4
Factory overhead 3

There is no work in process inventory of this product due to the nature of

the product and the manufacturing process. The following schedule
reports the manufacturing and sales activity measured at standard cost
for the current fiscal year:
Units Pesos
Products manufactured 95,000 P855,000
Beginning finished goods inventory 15,000
135,000
Goods available for sale 110,000
990,000
Ending finished goods inventory 19,000
171,000
Cost of goods sold 91,000 P819,000

The balance of the Finished Goods Inventory, P140,800 reported on the

balance sheet at the beginning of the year, included a P5,800
adjustment for variances from standard cost. The unfavorable standard
cost variance for labor for the current fiscal year consisted of a wage
rate variance of P32,000 and labor efficiency variance of P20,000 (2,500
hours @ P8). There were no other variances from standard cost for this
year.

Assuming the unfavorable labor variance totalling P52,000 are

considered material in amounts by management and are to be allocated
to finished goods inventory and to cost of goods sold, compute the
amount for Cost of Goods Sold on the income statement prepared for the
fiscal year.
a. P871,000
b. P876,000
c. P866,400

128
d. P860,600

Answer: C
Cost of Finished
Goods Sold Goods Inventory
Standard cost P819,000 P171,000
Adjustment for variances:
Beginning inventory variance 5,800 -
Current year variance:
76/95 x 52,000 41,600
19/95 x 52,000 10,400
Financial statement value P866,400 P181,400

The total units sold during the year under FIFO composed of:
Units sold 91,000
Beginning inventory 15,000
Current production 76,000 91,000

The total units produced during the year were allocated as follows:
Allocation for current variance
Sold 76,000 76/95
Ending inventory 19,000 19/95
Total 95,000

199. The Kornbrant Company was totally destroyed by fire during June.
However, certain fragments of its cost records with the following data
were recovered: idle capacity variance, P12,660 favorable; spending
variance, P8,790 unfavorable; and applied factory overhead, P162,340.

Determine the budget allowance, based on capacity utilized.

a. P149,680
b. P175,000
c. P153,550
d. P171,130

Answer: A
Applied factory overhead equal to standard overhead P162,340
Less: Idle capacity variance favourable 12,660
Budget allowed based on actual activity attained P149,680

200. Garment Company manufactures “one size fits all” ready-to-wear outfit
and uses a standard costing system. Each unit of finished outfit contains
2 yards of fabric. Based on experience, 20% waste on fabric input is
incurred. The cost of fabric is P75 per yard.

How much material cost is incurred in producing one outfit?

a. P187.50
b. P150.00
129
c. P200.00
d. P120.00

Answer: A
Actual material input (2 yards/80% net of waste) 2.5
yards
Cost per yard x P75
Material cost incurred in producing one unit P187.50

201. S Company established a standard cost of direct materials at P25 per

unit. Actual cost of direct materials fluctuated during the period. Of the
10,000 units purchased, 50% had a cost of P24.70, 20% were purchased
at P24.90 and the remaining units had a cost of P25.60. What is the direct
materials cost variance.
a. P3,000 favorable
b. P200 favorable
c. P6,000 unfavorable
d. P100 unfavorable

Answer: D
Actual costs of direct materials used:
50% x 10,000 x 24.70 P123,500
20% x 10,000 x 24.90 49,800
30% x 10,000 x 25.60 76,800 P250,100
Standard material costs (10,000 x 25)
250,000
Unfavorable direct material cost variance P 100

202. The city of Manila has a maintenance shop where all kinds of trucks
repairs are performed. Through the years, various labor standards have
been developed to judge performance. However, during a March strike,
some labor records vanished. The actual hours of input were 1,000. The
direct labor flexible-budget variance was P1,700, favorable. The standard
labor price was P14 per hour; however, a recent labor shortage had
necessitated using higher-paid workers for some jobs and had produced a
labor-price variance for March of P400, unfavorable. What is the standard
hours allowed for output achieved.
a. 1,000
b. 1,150
c. 1,093
d. 850

Answer: B
Actual labor price:
(Actual rate – standard rate) x actual hours = Labor price variance
? - P14 x 1,000 = P400 unfavorable
Therefore, the difference in rate must be (400/1,000) = P0.40

130
Actual labor rate (price) = 14 + 0.40 = P14.40
Direct labor-flexible budget variance:
Actual direct labor cost (1,000 hrs x P14.40) P14,400
Standard direct labor costs ( Standard hrs x P14.00) ? .
Direct labor-flexible budget variance P 1,700
favorable
Therefore, the standard hours allowed for actual output achieved:
(P14,400 + 1,700)/P14.00 = 1,150 hours

Items 203 and 204 are based on the following:

Orling Company makes use of the two-way analysis of overhead variances.

Orling’s budgeted factory overhead for fixed costs is P1,200,000 per month, plus
a variable factory overhead rate of P9.60 for every direct labor hour. The
standard direct labor hours allowed for May, 20x6 production are 432,000 hours.
An analysis of the factory overhead showed that, in May, Orling had an
unfavorable budget (controllable) variance of P24,000 and favorable volume
balance of P12,000.

203. What was the factory overhead rate?

a. P9.60
b. P12.41
c. P12.38
d. P12.00

Answer: B
Volume variance must be:
Budget allowed based on standard hours:
Fixed overhead P1,200,000
Variable overhead (432,000 x 9.60) 4,147,200 P5,347,200
Applied overhead = standard overhead
(432,000 x OHRate) ? .
12,000 favorable
Therefore, Overhead Rate must be:
(5,347,200 + 12,000)/432,000 = P12.41

204. What is the applied factory overhead in May?

a. P5,371,200
b. P5,359,200
c. P5,335,200
d. P5,347,200

Answer: B
Applied factory overhead = 432,000 x P12.41 = P5,359,200

205. Nutty Inc. estimated a project which started in January as follows:

131
Direct materials P495,000
Direct labor, 6,000 hours @ P30 per hour.
Variable overhead varies at P24 per direct labor hour.

By the end of the semester, all materials required were used at

P491,100. Labor was 80% complete at 4,650 hours at P30 per hour.
Variable overhead amounted to P113,700
The total variance for the project as of end of the semester would be:
a. Favorable of P9,900
b. Favorable of P9,000
c. Unfavorable of P8,400
d. Unfavorable of P7,500

Answer: A
Actual manufacturing costs:
Direct materials used P491,100
Direct labor costs (4,650 x 30) 139,500
Factory overhead incurred 113,700 P744,300
Standard manufacturing costs:
Direct materials P495,000
Direct labor costs (6,000 x 80% x 30) 144,000
Factory overhead (6,000 x 80% x 24) 115,200 754,200
Total favourable variance P 9,900

206. Best Electronics, at normal operating capacity operates at 600,000 direct

labor hours with a standard labor rate of P20. Variable factory overhead is
applied at the rate of P12 per direct labor hour. Four units of device
should be completed in an hour. Last year, 1,350,000 units of devices
were assembled using 300,000 direct labor hours. All labor hours were
paid at standard rate. Actual overhead for the year were recorded at
P3,738,000 for variable overhead and P3 million for fixed overhead. The
total labor and overhead costs saved by producing at more than standard
rate amounted to
a. P1,200,000
b. P450,000
c. P750,000
d. P500,000

Answer: A
Labor efficiency variance:
Actual hours worked 300,000
Standard hours allowed (1,350,000 units/4 hrs per unit) 337,500
Labor hours variance favourable 37,500
Standard direct labor rate x 20 P
750,000

Overhead efficiency variance

132
(300,000 – 337,500) x 12 450,000
Total labor and overhead savings – favourable
P1,200,000

207. Sherilyn Manufacturing Company produce a product called Sexy. The

following information pertain to this product.
Required hours per unit 2 hours
Number of employees 25
Estimated weekly wage per employee P480
Employee benefits (related to wages) 25%
Weekly hour per employee 30 hours
Employee benefits treated as direct manufacturing labor cost.
What is the standard direct labor cost per unit?
a. P20
b. P40
c. P24
d. P16

Answer: B
Estimated weekly wage per employee P480
Add: Employee benefits (25% x 480) 120
Total direct labor per week per employee P600
Weekly hour per employee  30 hours
Direct labor per hour P 20
Required hours per unit x 2 hours
Direct labor cost per unit P 40

208. Maagap Company is a new manufacturing company which is setting up a

standard cost system. It intends to isolate variances at the earliest point
in time. The following were noted as variances for the month just ended:
1. When the purchase order is prepared favorable of P16,000.
2. When the material is purchased, favorable of P15,000.
3. When the material is issued to production, unfavorable of
P10,000.
4. When the material is used in the production, unfavorable of
P8,000.

As such to isolate and identify the direct material price variance the
relevant figure to use is
a. Favorable of P15,000
b. Unfavorable of P10,000
c. Favorable of P16,000.
d. Unfavorable of P8,000.

Answer: A
When the material is purchased, purchase price variance of P15,000
favorable.

133
209. A company’s operation for the month just ended originally set that at a
60,000 direct labor hour level, the budgeted variable overhead was
P240,000 and the budgeted direct labor was P960,000 Actual results
disclosed that the direct labor costs incurred amounted to P1,148,000
and that variable manufacturing overhead efficiency variance showed
unfavorably at P40,000.

Labor troubles caused a major slowdown in the pace of production

resulting in an unfavorable labor efficiency variance of P120,000. Some
workers quit and replacements had to be hired at higher rates, which had
to be extended to all workers. The actual average wage rate during the
month exceeded the standard average wage rate by P0.40 per hour. The
total number of standard direct labor hours allowed for the units
produced amounted to
a. 40,000
b. 50,000
c. 62,500
d. 70,000

Answer: C
Standard direct labor rate = P960,000/60,000 direct labor hours = P16/hr.
(Actual hrs – Standard hrs) x Standard rate = Labor efficiency variance
{(P1,148,000/P16.00 + 0.40) – Standard hrs} x P16.00 = P120,000
unfavorable
70,000 hrs - Standard hrs x P16.00 = P120,000
unfavorable
Standard hours = 70,000 actual hours less 120,000 unfavorable variance
divide by P16 standard rate. = 62,500 hours

210. G Company uses a standard cost system. For the month of April 20x3,
total overhead is budgeted at P80,000 based on the normal capacity of
20,000 direct-labor hours. At standard each unit of finished product
requires 2 direct-labor hour. The following data are available for the April
20x3 production activity:
Equivalent units of production 9,500
Direct-labor hours worked 19,500
Actual total overhead incurred P79,500

What amount should G credit to the applied factory overhead account

for the month of April 20x3?
a. P76,000
b. P78,000
c. P79,500
d. P80,000

Answer: A
Under standard cost system the credit to applied overhead must be equal to
standard overhead of

134
9,500 equivalent units x standard hour of 2 x standard overhead rate of
P80,000/20,000 DLHrs,
9,500 x 2 x 4 = P76,000

211. F Company uses a flexible budget system and prepared the following
information for 20x3:

Normal capacity Maximum capacity

Percent of capacity 80% 100%
Direct labor hours 32,000 40,000
Variable factory overhead P 64,000 P 80,000
Fixed factory overhead P160,000 P160,000
Total factory overhead rate
per direct labor hour P7.00 P6.00

F operated at 90% of capacity during 20x3. The actual factory overhead

for 20x3 was P252,000. What was the budget (controllable) overhead
variance for the year?
a. P36,000 unfavorable
b. P20,000 unfavorable
c. P18,000 unfavorable
d. P0

Answer: B

Actual factory overhead P252,000

Budget allowed at 90% capacity:
Fixed overhead P160,000
Variable overhead (80,000 x 90%) 72,000 232,000
Budget variance – unfavourable P 20,000

212. In trying to improve the production of the company, Sayonara Company

instituted labor bonus plan. Effectively, it pays employees 75% of the
time save in production when production exceeds the standard level. For
a more consistent performance, the bonus is computed on the basis of
production for a four-week period.

Each employee works 37 hours per week. The standard production per
hour was established at 3 units of product. Each employee is paid at the
rate of P24 per hour. Below are the data on four employees for Unit I for
the month of March.
Production in Units
Period Amanda Priscila Rosanna
Serafina
1st week 107 104 108
128
2nd week 100 110 112 120
3rd week 110 115 112 119

135
4th week 108 115 133 124
Total 425 444 465 486

The employee who had inconsistent performance (who sometimes

performed below standard) but got a bonus was
a. Rosanna at 465 units or P126 bonus
b. Rosanna at 465 units or P168 bonus
c. Serafina at 486 units or P252 bonus
d. Serafina at 486 units or P432 bonus

Answer: A
The standard production per week must be 111 units (37 hours x 3 units per
hour)
Serafina produced more than the standard per week, whereas Rosanna
produced below the standard in the first week but received bonus because
the standard units for 4 weeks must be 444 units (111 x 4).
Bonus = 465 – 444 = 21 units/3 units per hr x 24 x 75% = P126

213. The following were among Gage Company’s 20x1 costs:

Normal spoilage P
5,000
Freight out 10,000
Excess of actual manufacturing costs over standard costs
20,000
Standard manufacturing costs 100,000
Actual prime manufacturing costs
80,000

Gage’s 20x1 actual manufacturing overhead was

a. P 40,000
b. P 45,000
c. P 55,000
d. P120,000

Answer: A
Standard manufacturing costs
P100,000
Add: Excess of actual manufacturing costs over standard costs
20,000
Actual manufacturing costs P120,000
Less: Actual prime manufacturing costs
80,000
Actual manufacturing overhead costs P
40,000

214. Trying Hard Company has the following information:

136
Net unfavorable conversion costs variances:
Direct labor price P 4,500
Direct labor efficiency 2,000
Total factory overhead 6,000
Total P12,500
Equivalent units
Work in process inventory 400
Finished goods inventory 1,200
Cost of goods sold 3,400
Total 5,000

Additionally, the one variance method was used to analyze factory

overhead.
The journal entry to prorate the net unfavorable conversion cost
variance would include:
a. A debit to Direct Labor Efficiency Variance for P2,000.
b. debit to Cost of Goods Sold for P12,500.
c. A debit to Finished Goods Inventory for P3,400.
d. A debit to Work-in-Process Inventory for P1,000.

Answer: D
Net
unfavorable
Equivalent conversion
units Ratio costs variance
Work in process inventory 400 400/5,000 P
1,000
Finished goods inventory 1,200 1,200/5,000
3,000
Cost of goods sold 3,400 3,400/5,000 8,500
5,000 P12,500

Journal entry to prorate the net unfavourable conversion variance:

Work in process inventory 1,000
Finished goods inventory 3,000
Cost of goods sold 8,500
Direct labor price variance 4,500
Direct labor efficiency variance 2,000
Factory overhead variance 6,000

215. The following information was given for Frances Company, which
manufactures dolls:
Units sold (at P150 per unit) 24,000
Units of finished product produced 26,000
Direct materials quantity standard 6 pounds of direct
materials per
unit of finished product
Direct materials used in production 156,500 pounds

137
Direct materials purchased 160,000 pounds
Direct materials standard price P8.10 each
Actual direct materials price P8.07 each
Direct labor efficiency standard 3 hours per unit
Actual direct labor hours worked 77,600 hours
Direct labor standard wage rate P6.25 per hour
Direct labor actual wage rate P6.30 per hour
Budgeted factory overhead was based on 80,000 normal capacity direct
labor hours.
Variable P300,000
Fixed 500,000
Total P800,000
Total actual factory overhead P760,000

Frances Company uses standard costing in its weighted-average process

cost accumulation system.
Beginning work in process inventory: 1,000 units (100% complete as to
direct materials; 60% complete as to conversion costs)
Ending work in process inventory: 400 units (100% complete as to direct
materials; 20% complete as to conversion costs).
There were no beginning direct materials or finished goods inventories.
The variances are immaterial in amount and these are charged to cost of
goods sold at the end of the period.
How much must be the amount of cost of goods sold after adjustment
for variances?
a. P2,336,400
b. P2,531,100
c. P2,399,890
d. P2,371,540

Answer: D
Materials Labor Overhead
Finished goods produced 26,000 26,000 26,000
In process, end 400 80 80
In process, beginning (WDLM) ( 1,000) ( 600) ( 600)
Equivalent units 25,400 25,480 25,480
Standard overhead rate:
Fixed (500,000/80,000) P 6.25
Variable (300,000/80,000) 3.75
P10.00
Standard cost of goods sold
Direct material costs (6 pounds x 8.10 per pound) P48.60
Direct labor costs (3 hours x 6.25 per hour) 18.75
Manufacturing overhead (3 hours x 10 per hour) 30.00
P97.35
Units sold x 24,000 units P2,336.400

Add: Net unfavourable variance:

Material costs variance:
Purchase price variance (160,000 x {8.07 – 8.10}) (P 4,800)
Quantity variance (156,500 – {25,400 x 6}) x 8.10 33,210 28,410 UF

138
Labor costs variance:
Rate variance (6.30 – 6.25) x 77,600 hours P 3,880
Efficiency variance (77,600 – {3 x 25,480}) x 6.25 7,250 11,130
UF
Overhead variance:
Controllable variance
Actual overhead P760,000
Budget allowed
Fixed overhead P500,000
Variable overhead
(25,480 x 3 x 3.75) 286,650 786,650 (26,650)
Volume variance
Budged allowed P786,650
Applied overhead (25,480 x 3 x 10) 764,400 22,250
4,400 F
Total manufacturing costs variance P 35,140
UF
Actual costs of goods sold P2,371,540

Items 216 and 217 are based on the following:

Bessa Company uses a standard process costing system in accounting for costs
in its one production department. Material A is added at the beginning of the
process, and Material B is added when the units are 90% complete. Conversion
costs are incurred uniformly throughout the process. Inspection takes place at
the end of the process, and all spoilage is expected to be abnormal. The
standard cost of abnormal spoilage is charged to a current period expense
account. Normal capacity is 7,800 direct labor hours per month.
The standard cost per unit is as follows:
Material A: 4 gallons @ P2.40 P 9.60
Material B: 2 square feet @ P1.40 2.80
Direct labor: 1 hour @ P23.00 23.00
Variable factory overhead: 1 hour @ P3.60 3.60
Fixed factory overhead: 1 hour @ P10.00 10.00
Total P49.00
Additional data for January:
(a) Beginning work in process inventory - 3,000 units (33-1/3%
converted)
(b) Started in process during the month - 11,000 units
(c) Finished during the month - 8,000 units
(d) Ending work in process inventory - 5,000 units (40% converted)
(e) Actual costs incurred:
Material A used 50,000 gallons @ P2.00
Material B used 18,000 square feet @ P1.50
Direct labor 10,200 hours @ P24.00
Factory overhead P120,200

216. The controllable variance is

a. P9,800 UF
b. P6,200 UF

139
c. P2,600 F
d. P6,200 F

Answer:
Material A Material B Labor Overhead
Finished goods 8,000 8,000 8,000
8,000
In process, end 5,000 - 2,000 2,000
Spoiled units 1,000 1,000 1,000 1,000
In process, beg (WDLM) ( 3,000) - ( 1,000)
( 1,000)
Equivalent units 11,000 9,000 10,000 10,000

Standard quantity:
Material A = 11,000 x 4 = 44,000 gallons
Material B = 9,000 x 2 = 18,000 square feet
Labor = 10,000 x 1 = 10,000 labor hours
Overhead = 10,000 x 1 = 10,000 overhead hours
Controllable variance: B
Actual overhead
P120,200
Budget allowed:
Fixed overhead (7,800 x 10) P78,000
Variable overhead (10,000 x 3.60) 36,000
114,000
P 6,200 UF
217. The material quantity variance must be:
a. P14,400 UF
b. P26,800 UF
c. P2,000 F
d. P12,000 F

Answer: A
Material Quantity Variance:
Material A (50,000 – 44,000) x 2.40 P14,400 UF
Material B (18,000 – 18,000) x 1.40 none P14,400
UF

218. Evelyn Corp. manufactures rafts for use in swimming pools. The standard
cost for material and labor is P892 per raft. This includes 8 kilograms of
direct material at a standard cost of P50 per kilogram, and 6 hours of
direct labor at P82 per hour. The following data pertain to November.
 Work in process inventory on November 1: none
 Work in process inventory on November 30: 800 units (75 percent
complete as to labor; material is issued at the beginning of
processing).
 Units completed: 5,600 units.
 Purchase of materials: 50,000 kilograms for P2,492,500.
 Total actual labor costs: P3,007,600.
140
 Actual hours of labor: 36,500 hours.
 Direct-material quantity variance: P15,000 unfavorable.

The entry to record direct labor cost charged to production must be:
a. Work in process inventory 3,007,600
Payroll 3,007,600
b. Work in process inventory 2,755,200
Labor cost variance 252,400
Payroll 3,007,600
c. Work in process inventory 3,050,400
Labor efficiency variance 13,100
Labor rate variance
55,900
Payroll 3,007,600
d. Work in process inventory 3,050,400
Labor rate variance 14,600
Labor efficiency variance
57,400
Payroll 3,007,600

Answer: D
Equivalent conversion units:
Units completed 5,600
In process, end (800 x 75%) 600 6,200 units

The debit to work in process account must be equal to standard direct labor
costs
6,200 units x 6 hours x 82 per hour = P3,050,400.
Labor rate variance ({3,007,600/36,500} - 82) x 36,500 hours = P14,600
unfavorable
Labor efficiency variance (36,500 – {6,200 x 6}) x 82 = P57,400 favorable.

Journal entry must be:

Work in process inventory 3,050,400
Labor rate variance 14,600
Labor efficiency variance 57,400
Payroll 3,007,600

219. Consider the following data:

Materials Labor
Cost incurred: actual inputs x actual prices P200,000
P90,000
Actual inputs x standard prices 214,000
86,000
Standard inputs allowed for actual outputs
achieved x standard prices 225,000 80,000

141
The entry to record materials issued to production under standard cost
system must be:
a. Work in process inventory 225,000
Material quantity variance 11,000
Materials inventory 214,000
b. Work in process inventory 214,000
Material quantity variance 14,000
Materials inventory 200,000
c. Work in process inventory 225,000
Material quantity variance 25,000
Materials inventory 200,000
d. Work in process inventory 214,000
Material quantity variance 11,000
Materials inventory 225,000

Answer: A
Work in process (at standard costs, given) 225,000
Material quantity variance (225,000 – 214,000) 11,000
Material inventory (given) 214,000

220. Which entry is an example of recording direct materials used and

material price and quantity variances? (assume that materials price
variances are recorded at time of transfer to WIP, not at time of
purchase.)
a. Work in process xx
Finished goods xx
DM price variance xx
Inventory xx
b. Finished goods xx
DM price variance xx
DM quantity variance xx
Inventory xx
c. Inventory xx
Work in process xx
DM price variance xx
d. Work in process xx
DM price variance xx
DM quantity variance xx
Inventory xx
Answer: D

221. What is the journal entry to record accrued payroll and the proper
allocation of direct labor costs when actual hours exceed standard hours
but the actual wage rate was less than the standard wage rate?
a. Wage expense xx
DL efficiency variance xx
Accrued payroll xx
b. Work in process xx

142
DL efficiency variance xx
DL price variance xx
Accrued payroll xx
c. Accrued payroll xx
DL price variance xx
Work in process xx
DL efficiency variance xx
d. Work in process xx
DL price variance xx
DL efficiency variance xx
Accrued payroll xx

Answer: B

222. What is the year-end journal entry to close the fixed factory overhead
account (assuming underutilization of capacity)?
a. Fixed O/H applied xx
Production volume variance xx
Fixed O/H control xx
b. Fixed O/H applied xx
Fixed O/H control xx
c. Fixed O/H control xx
Fixed O/H applied xx
d. Fixed O/h applied xx
Production volume variance xx
Fixed O/H control xx

Answer: A

223. The following processing standards have been set for Duo Company’s
clerical workers:

Number of hours per 1,000 papers processed 150

Normal number of papers processed per year 1,500,000
Wage rate per 1,000 papers P 600
Standard variable cost of processing 1,500,000 papers P
900,000
Fixed costs per year P 150,000

The following information pertains to the 1,200,000 papers that were

processed during 20x2:
Total cost P915,000
Labor cost P760,000
Labor hours 190,000

For 20x2, Duo’s expected total cost to process the 1,200,000 papers,
assuming standard performance, should be
a. P910,000

143
b. P900,000
c. P870,000
d. P840,000

Answer: C

Budget allowed for 1,200,000 papers:

Fixed overhead P150,000
Variable overhead (900,000/1,500,000 x 1,200,000) 720,000
P870,000

224. In relation to the above information, for 20x2, Duo’s labor rate variance
would be
a. P40,000 unfavorable
b. P32,000 favorable
c. P10,000 unfavorable
d. P0

Answer: D
Actual rate (760,000/190,000) P4
Standard rate (600/150) 4 P0

225. Department X, manager Mang Andoy, controls the department’s costs.

For the month just ended, the following data were reported:

Variable factory overhead

Budgeted based on standard hours allowed P400,000
Actual 425,000
Fixed factory overhead
Budgeted P125,000
Actual 135,000
The spending variance for the month just ended was
a. P25,000 favorable
b. P20,000 unfavorable
c. Zero
d. P35,000 unfavorable

Answer: D
Spending variance:
Actual overhead (425,000 + 135,000) P560,000
Budgeted overhead (400,000 + 125,000) 525,000
P 35,000 unfavorable

144