ACCOUNTING 201 COST ACCOUNTING

PRELIMINARY EXAM

1. It is a part of the accounting system that measures costs for decision-making and financial reporting
purposes.
a. Financial accounting c. Responsibility accounting
b. Cost accounting d. Segment accounting

2. Traditional cost accounting may best be described by

a. All of the journals, ledgers, records and financial statements used by an entity to record, classify,
summarize, and report the economic events of such entity.
b. The entire general and subsidiary ledgers of a merchandising firm.
c. The general ledger and subsidiary accounts and related records used by an entity to accumulate
the costs of goods or services that it provides.
d. The subsidiary ledgers used to record the economic activities of the firm.

3. A cost accounting system has internal and external reporting objectives. Such objectives include the
following, except:
a. Income determination
b. Product costing and inventory valuation
c. Planning, evaluation and controlling operations
d. Determination of sales commissions

4. Which of the following statements is correct?

a. The accounting system is part of cost accounting that measures cost for decision-making and
financial reporting purposes.
b. Cost accumulation involves collecting costs by natural classification, such as materials or labor.
c. Cost allocation or cost assignment involves tracing and assigning costs to cost drivers, such as
direct labor hours or number of units.
d. Cost and managerial accounting are goods in the economic sense and, as such, their costs must
exceed their benefits.

5. Cost is the monetary measure of the amount of resources given up in obtaining goods and services.
Costs may be classified as unexpired or expired. Which of the following costs is not always
considered to be expired upon being recognized?
a. Salesmen’s commission
b. Depreciation expense for factory equipment
c. Cost of goods sold
d. Salary of the company president

6. It refers to anything (a product, product line, a business segment) for which cost is computed.
a. Cost object c. Cost control
b. Cost driver d. Cost variance

7. It is a group of individual cost items, or an account in which a variety of similar costs are
accumulated.
a. Cost driver c. Income statement
b. Cost variance d. Cost pool
8. Which of the following statements is correct?
a. A cost driver is an accounting technique used to control costs.
b. A cost driver is a measure of activity, such as direct labor hours, machine hours, beds occupied,
computer time, etc. that is a causal factor in the incurrence of costs.
c. A cost driver is an accounting measurement used to evaluate whether or not performance is
proceeding according to plan.
d. A cost driver is a mechanical basis used to assign costs to activities.

9. Product costs or inventoriable costs

a. are charged to expense when products become part of the finished goods inventory.
b. include only the prime costs of producing product.
c. are treated as assets before the products are sold.
d. include only the conversion costs of producing the products.

10. Which of the following is not a product cost?

a. Wages paid to workers for rework on defective products.
b. Wages paid to truck loaders who load finished goods onto outgoing delivery trucks.
c. Fringe benefits paid to factory workers.
d. Wages paid to workers for idle time due to machine breakdown in a production department.

11. Product costs

a. are always expensed in the same period in which they are incurred.
b. are inventoriable costs.
c. vary directly with changes in the cost driver.
d. are always charged to an asset account in the same period in which they are incurred.

12. Manufacturing costs do not include

a. Prime costs
b. Conversion costs
c. Indirect materials
d. Salary of the company president, under whom is the vice president for production

13. Direct labor is a

a. prime cost c. product cost
b. conversion cost d. all of the above.

14. For product costing purposes, an indirect factory cost

a. Is not directly chargeable to the company.
b. Is chargeable to prime costs.
c. Is chargeable to conversion costs.
d. Is never included in the computation of product cost.

15. A fixed cost that would be considered a direct cost is

a. salary of the sales manager when the cost object is the sales department.
b. salary of the controller when the cost object is a unit of product.
c. fees of the Board of Directors when the cost object is the Production Department.
d. the rental cost of the finished goods warehouse when the cost object is the Accounting
Department.
16. Indirect materials and indirect labor are
Prime Cost Conversion Cost Manufacturing Cost
a. Yes Yes Yes
b. No No Yes
c. No Yes Yes
d. Yes No No

17. Which of the following is a direct product cost?

a. Wood in a furniture factory
b. Salary of the foreman in the assembly division of an automobile company
c. Depreciation of the factory equipment
d. Salesman’s commission

18. Differential costs

a. are variable costs
b. are anticipated future costs that will differ among various alternatives.
c. are the differences in costs between two alternative courses of action.
d. are costs that differ under alternatives.

19. Sunk costs

a. are relevant costs.
b. can be changed by a decision made now or to be made in the future.
c. are irrelevant for decision-making purposes.
d. are decreases in costs from one alternative to another.

20. When production (in units) decreases, the average cost per unit of product increases. This increase
in average cost per unit is due to the
a. increase in variable cost per unit. c. increase in total variable costs.
b. increase in fixed cost per unit. d. increase in total fixed costs.

21. These costs are long-term in nature and cannot be eliminated ever for short periods of time without
affecting the profitability of long-term goals of the firm.
a. Avoidable costs c. Variable costs
b. Committed fixed costs d. Controllable costs

22. Mixed costs are costs that have

a. variable and fixed costs components.
b. manufacturing and administrative costs components.
c. selling and administrative costs components.
d. direct and indirect costs components.

23. The method of averaging costs and providing management with unit cost data by companies may
depend on the type of products being produced – whether homogeneous or heterogeneous
products. The appropriate costing methods for such types of products are
Homogeneous Products Heterogeneous Products
a. Process costing Job-order costing
b. Process costing Process costing
c. Job-order costing Job-order costing
d. Job-order costing Process costing
24. Within the accounting system, cost accounting
a. is a combination of managerial accounting and financial accounting since its purpose can be to
provide internal reports for use in management planning, control and decision-making, and
because its product costing function satisfies external reporting requirements.
b. is concerned only with internal reporting that aids management in decision-making.
c. can best be defined as external reporting to government, stockholders, and other interested
parties.
d. is a combination of managerial accounting and responsibility accounting.

25. Which of the following alternatives does not correctly classify the business application to the
appropriate costing system?
Process Costing System Job-order Costing System
a. Car repair shop Paint manufacturer
b. Softdrinks manufacturer Public accounting firm
c. Wallpaper manufacturer Print shop
d. Pen manufacturer Renovation job contractors

26. The accounting records for 2019 of EGGS Manufacturing Company showed the following
information:

Increase in raw materials inventory P45,000

Decrease in Finished goods inventory 150,000
Increase in Work-in-Process inventory 60,000
Raw materials purchased 1,290,000
Direct labor payroll 600,000
Factory overhead 900,000
Freight out 135,000

The cost of raw materials used for the period amounted to:
a. P1,245,000 c. P1,335,000
b. P1,290,000 d. P1,380,000

27. The following information pertains to Alma Co., manufacturing process

2019
March 1 March 31
Inventories
Direct materials P36,000 P30,000
Work in process 18,000 12,000
Finished goods 54,000 72,000
Additional information for the month of March:
Direct materials purchased 84,000
Direct labor payroll 60,000
Direct labor rate per hour 7.50
Factory overhead rate per direct labor hour 10.00

How much must be the prime cost, conversion cost, and cost of goods manufactured for the month?
Cost of goods
Prime cost Conversion cost manufactured
a. P90,000 P60,000 P236,000
b. 150,000 140,000 296,000
c. 144,000 170,000 230,000
d. 150,000 140,000 236,000
 For numbers 28 and 29:

Adams Company uses a job order costing system and the following information is available from the
records. The company has 3 jobs in process: 501, 502 and 503.

Raw materials used P120,000

Direct labor per hour P8.50
Overhead applied based on direct labor cost 120%

Direct materials were requisitioned as follows for each job, respectively: 30%, 25% and 25%, the balance
of the requisitions were considered indirect. Direct labor hours per job 2,500, 3,100, and 4,200,
respectively. Indirect labor is P33,000. Other actual overhead costs totaled P36,000.

28. What is the total amount of actual factory overhead?

a. P36,000 c. P93,000
b. P69,000 d. P99,960

29. If Job 503 is completed and transferred, how much is the total cost transferred to Finished Goods
Inventory?
a. P96,700 c. P108,540
b. P99,020 d. P139,540

30. Miracle Company provides you with the following information

Jan. 1, 2019 Jan. 31, 2019

Inventories:
Materials P? P50,000
Work in process 80,000 95,000
Finished goods 60,000 78,000
January transactions:
Purchases of materials, P46,000
Factory overhead (75% of direct labor cost) P63,000
Selling and administrative expenses (12.5% of sales, P25,000)
Factory overhead control, P62,800
Net income for January, P25,200
Indirect materials used, P1,000

Compute for materials inventory, Jan. 1, cost of goods manufactured and cost of goods sold
(normal) for the month of January, 2019.

Materials Inventory Cost of goods Cost of goods

Jan. 1 manufactured sold
a. P40,000 P168,200 P150,200
b. 40,200 168,000 150,000
c. 40,800 167,800 149,800
d. 41,000 168,000 150,000

31. Job No. 41 (consisting of 5,000 units) was started in September, 2019 and it is special in nature
because of its strict specifications. Factory overhead is charged at P0.80 per unit and includes a P.05
provision for defective work. The prime costs incurred in September are: Direct materials, P9,000
and Direct labor, P4,800. Upon inspection, 80 units were found with imperfections and required the
following reprocessing costs, Direct materials, P1,500 and direct labor, P800. The unit cost of Job No
41, upon completion, is:
a. P4.10 c. P3.98
b. P4.05 d. P3.62
 For numbers 32 to 33:

Work in process of Alonzo Corporation on July 1, 2019 (per general ledger) is P22,800.

Job 101 Job 102

Direct materials P6,000 P8,000
Direct labor 3,000 2,500

Amount charged to Work in process for July, 2019

Job 101 Job 102 Job 103 Job 104
Direct materials P3,000 P2,000 P6,000 P4,500
Direct labor 1,000 1,500 2,600 2,000

Factory overhead is applied to production based on direct labor cost. Job 101 and 103 are completed
during the month.

32. Cost of goods put into process must be:

a. P42,100 c. P45,400
b. P26,860 d. P49,660

33. The cost of goods manufactured for the month of July is

a. P21,600 c. P25,560
b. P15,400 d. P31,800

34. Marco Corporation has a job order cost system. The following debits (credits) appeared in the
general ledger account work-in-process for the month of September, 2019:

September 1 Balance P12,000

September 30, direct materials 40,000
September 30, direct labor 30,000
September 30, factory overhead 27,000
September 30, to finished goods (100,000)

Marco applies overhead to production at a predetermined rate of 90% based on direct labor cost.
Job no. 232, the only job still in process at the end of September, 2019, has been charged with
factory overhead of P2,250.

What was the amount of direct materials charged to Job 232 as at the end of September, 2019?
a. P2,250 c. P4,250
b. P2,500 d. P9,000

35. Justine 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 P12,500, cost 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. Actual
factory overhead for the period amounted to P387,875 and machine hours used totaled 74,000
hours. What was the over or underapplied factory overhead for the period?
a. P12,650 overapplied c. P108,850 overapplied
b. P12,650 underapplied d. P108,850 underapplied
36. Tudors, Inc. purchases and resells a single item of product. Inventory at the beginning of September,
2019 was 400 units, values at P1.80 each. Further receipts and sales during the month were as
follows:

Units Pesos per Unit

Sept. 8 Receipts 600 P2.10
Sept. 14 Receipts 500 ?
Sept 25 Sales 1,250 4.00

The company uses the FIFO. Gross margin for September was P2,500.

What was the cost per unit of the 500 units received on Sept. 14?
a. P2.08 c. P1.94
b. P2.00 d. P1.04

37. The accounting records for 2019 of Wagner Music Co. showed the following:

Decrease in raw materials inventory P45,000

Decrease in finished goods inventory 150,000
Raw materials purchased 1,290,000
Direct labor payroll 600,000
Factory overhead 900,000
Freight-out 135,000

The cost of raw materials used for the period amounted to

a. P1,245,000 c. P1,335,000
b. P1,290,000 d. P1,380,000

38. The following information related to Job No. 2468, which is being carried out by Flxy Co. to meet a
customer’s order.

Dept. A Dept. B
Direct materials used P5,000 P3,000
Direct labor hours employed 400 200
Direct labor rate per hour P4.00 P5.00
Overhead rate per DL hour P4.00 P4.00
Adm. and other overhead 20% of full production cost
Profit markup 25% of selling price

The selling price to the customer of Job 2468 is:

a. P16,250 c. P17,333
b. P20,800 d. P19,500

39. Ronald Factory provides for an incentive scheme for its factory workers which features a combined
minimum 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 produced

R 67
O 78
L 80
A 82
N 72
D 75
 The portion of the weekly payroll that should be charged to factory overhead is
a. P5,325.00 c. P5,217.50
b. P5,275.00 d. P217.50

40. Worley Co. has underapplied overhead of P45,000 for the year ended December 31, 2019. Before
disposition of the underapplied overhead, selected December 31, 2019, balances from Worley’s
records are as follows:

Cost of goods sold 720,000

Inventories:
Direct materials 36,000
Work in process 54,000
Finished goods 90,000

Under Worley’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 2019 income statement, Worley should report cost of goods sold at
a. P682,500 c. P684,000
b. P756,000 d. P757,500

For numbers 41 to 43:

The following were taken from the books of Marvin Company.

January 1 March 31
Raw materials P268,000 P167,000
Work in process 0 0
Finished goods P43,000 ?
(100 units) (200 units)
Materials purchased P1,946,700
Direct labor 2,125,800
Factory overhead 764,000
Sales (12,400 units at P535)

41. The number of units manufactured is:

a. 11,900 c. 12,500
b. 12,000 d. 15,200

42. The cost of goods manufactured per unit is:

a. P300 c. P395
b. P350 d. P420

43. The cost of goods sold is:

a. P4,091,500 c. P4,901,500
b. P4,109,500 d. P4,910,500

44. Rumors Company applied factor overhead as follows:

Department Factory Overhead Rate

Fabricating P7.75 per Machine hour
Spreading 15.10 per Machine hour
Gossiping 2.125 per Machine hour
 Actual machine hours are: 19,000 hours for fabricating; 27,500 hours for spreading and 5,500 hours
for gossiping.

If the actual factory overhead cost for the period is P574,375, how much is over (under) applied
factory overhead?
a. (P11,875.00) c. (P187.50)
b. (P23,562.50) d. (P76,125.00)

45. Hamilton Company uses a job order costing. Factory overhead is applied to production at a
budgeted rate of 150% of direct labor costs. Any overapplied 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: Job 101 was the only job I process at January 31, 2019 with accumulated costs
as follows:

Direct materials P4,000

Direct labor 2,000
Factory overhead applied 3,000
P9,000

Jobs 102, 103 and 104 were started during February. Direct materials requisitions for February
totaled P26,000. Direct labor costs of P20,000 were incurred for February. Actual factory overhead
was P32,000 for February. The only job still in process at the end of February was Job 104, with costs
of P2,800 for direct materials and P1,800 for direct labor.

The cost of goods manufactured for February was:

a. P77,700 c. P78,000
b. P79,700 d. P85,000

46. Blue Beach Industries has two production departments, ABC and XYZ and uses a job order cost
system. In determining manufacturing costs, Blue Beach applies manufacturing overhead to
production orders based on direct labor cost using the departmental rates predetermined at the
beginning of the year based on the annual budget.

The 2019 budget for the two departments are as follows:

ABC XYZ
Direct materials P630,000 P90,000
Direct labor 180,000 720,000
Manufacturing overhead 540,000 360,000

Actual material and labor costs for Job No. 678 during 2019 were as follows:

Direct materials P22,500

Direct labor:
Department ABC 7,200
Department XYZ 10,800

What is the total manufacturing cost associated with Job No. 678 for 2019?
a. P45,000 c. P58,500
b. P49,500 d. P67,500
 For numbers 47 and 48:

Harper Company’s Job 501 for the manufacture of 2,200 units, which was completed during August at
the unit costs presented below:

Direct materials P20

Direct labor 18
Factory overhead (includes an allowance of P1 for spoiled work) 18
56

Final inspection of Job 501 disclosed 200 spoiled units which were sold to a local jobber for P6,000.

47. Assume that spoilage loss is charged to all production or due to internal failure during August) What
would be the unit cost of the product produced on Job 501?
a. P53.00 c. P56.00
b. P55.00 d. P58.60

48. Assume that the spoilage loss is attributable to the exacting specification of Job 501 (or production
run) and is charged to specific job. What would be the unit cost of the product produced on Job
501?
a. P53.00 c. P57.50
b. P55.00 d. P58.60

49. Simon Company manufactures electric drills to the exacting specifications of various customers.
During April 2019, Job 403 for the production of 1,100 drills was completed at the following costs
per unit:

Direct materials P10

Direct labor 8
Applied factory overhead 12
P30
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. The defective units
were reworked at a total cost of P500 and the spoiled drills were sold for P1,500. What would be the
unit cost of the good units produced on Job 403?
a. P33 c. P30
b. P32 d. P29
For numbers 50 and 51:

During March, Loryvi Company incurred the following costs on Job 109 for the manufacture of 200
motors:

Original cost accumulation:

Direct materials P660
Direct labor 800
Factory overhead (150% of direct labor) 1,200
Total costs P2,660
Direct costs of reworking 10 motors:
Direct materials P100
Direct labor 160
Total costs P260
50. The rework costs were attributable to internal failure (to all production) or charged to factory
overhead, what is the cost per finished unit of Job 109?
a. P15.80 c. P14.00
b. P14.60 d. P13.30

51. The rework costs were attributable to the exacting specifications of Job 109 (or production run) and
the full rework costs were charged to this specific job. What is the cost per finished unit of Job 109?
a. P15.80 c. P14.00
b. P14.60 d. P13.30