Accountancy Department

Preliminary Examination-Cost Accounting

Name of student: ____________________________________ Score: _______________

Date: _______________

Part I

Instructions: Decide if the statement is True or False. Write your answer on a separate
sheet of paper.

1. When raw materials are issued into production the Raw Materials in Process account is
debited.
2. Factory overhead control account is debited for the actual overhead costs incurred.
3. Finished Goods inventory account is credited for the amount of cost of goods
manufactured during a period.
4. In a company that makes dried fish, salt is treated as Indirect material.
5. The cost in the ending Finished Goods inventory account consists of the direct materials,
direct labor, and manufacturing overhead of all jobs still in process at the end of the
period.
6. Selling expenses are applied to production using a predetermined overhead rate.
7. Indirect materials are part of manufacturing overhead.
8. Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-
Process account.
9. A company that produces Spaceship will most likely use a job-order cost system.
10. Indirect materials issued into production should be debited to Work in Process.

Part II

Problems

1. XYZ company that employs Job order costing had the following data for the current year:

Work in Process, beginning balance P 420,000

Direct materials used in production 30,000
Direct labor 55,000
Actual overhead 70,000
Overhead applied 65,000
Work in Process, ending balance 40,000

Determine the amount of cost of goods manufactured during the year.

2. ABC company had the following data for the current year:
 Work in Process, beginning balance P 110,000
Direct materials used in production 45,000
Actual overhead 60,000
Overhead applied 70,000
Work in Process, ending balance 30,000
Cost of goods manufactured 235,000
Determine the amount of direct labor cost incurred during the year.

3. The beginning balance of Raw Materials inventory was P 20,000. During the year purchases
of raw materials for P 245,000 were made, but only P 175,000 were paid for. The balance
of Raw Materials at the end of the year was P 60,000. What was the amount of raw
materials used in production?

4. The beginning balance of Raw Materials inventory was P 30,000. During the year purchases
of raw materials for P 245,000 were made. Included in this invoice price was P 20,000
freight in. 20% of the items bought was returned due to defect. The balance of Raw
Materials at the end of the year was P 30,000. Direct labor for this production was 120,000
and overhead is 20% larger than the Direct labor. What was the total manufacturing cost?
5. Company uses a job-order costing system and applies overhead based on direct materials
used in production. For the recent year it estimated that $150,000 of manufacturing
overhead will be incurred and $100,000 of direct materials will be used. The following data
were provided by the company:
Beginning Ending
Raw Materials (30% is indirect) $60,000 $20,000
Work in Process $90,000 $65,000
Finished Goods $40,000 $28,000
Costs incurred during the year:
Purchases of raw materials (40% is indirect) P 180,000
Direct Labor (5% is indirect) 60,000

Compute the over or under applied overhead.

Problem III
A pastry chef creates and delivers specialty desserts to local restaurants and had seven
restaurants as clients which regularly made orders in volume.

It turns out that five clients consistently placed their dessert orders a week in advance. This
gave the chef time to plan ingredient purchases and production. She had two large commercial
ovens at home, which allowed her to bake a large number of items at a time.

During her review, she noticed that two clients, the Blue Heron and the Lakeside Café, didn’t
give her as much notice. On average, they placed orders just three days in advance. As a
result, she had to scramble. Her purchasing and production had to be changed. There’s a
financial impact, and it’s relevant. The chef had to buy additional ingredients (such as flour, milk,
eggs, sugar, and specialty food items) at the last minute — all the time.
Also, she had to buy less than her normal amounts. And she had to make extra trips back to her
suppliers to buy for the two late-ordering customers. The chef paid relatively more for smaller
amounts of ingredients, and her driving cost was the same as for a normal buy.

She should have passed those higher costs on to the Blue Heron and the Lakeside Café. Being
a diplomat, she would have explained the situation to them. Before she sent any invoice with
higher prices, she should have explained that ingredient costs were higher because they
ordered later than other clients. “If you order a week in advance, the product cost will be lower,
Mr. Customer!” Maybe this explanation would have changed the client’s behavior.

What type of restaurant would be the ideal new customer? What will be your advice?