COST ACCOUNTING AND COST MANAGEMENT 1

CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

Exercises:

The Macopa Furniture Corp. started its operations in 2014. It uses the job order costing method. To
effectively control disbursements and payables, the company has adopted the voucher system. The following
transactions are given:

a Materials purchases on account, P 100,000.

Materials 100,000
Vouchers payable 100,000
b Materials issued:
Job order no. 001 P 15,000
002 26,000
003 12,500

Work in process 53,500

Materials 53,500
c Indirect materials issued, P 10,500.
Factory overhead control 10,500
Materials 10,500
d Breakdown of payroll includes indirect labor, P 15,600 and direct labor charged as follows:
Job order no. 001 P 10,500
002 16,000
003 9,500
Work in process 36,000
Factory overhead control 15,600
Payroll 51,600
e Factory overhead charged to production, 80% of direct labor cost.
Work in process 28,800
Applied factory overhead 28,800
f Jobs 001 and 002 are completed.
Finished goods 88,700
Work in process 88,700
g Actual factory overhead amounts to P 28,400
Factory overhead control 28,400
Sundry credits 28,400
h Job 001 is sold for cash at a gross profit of 60% based on selling price.
Cash 84,750
Sales 84,750

Cost of goods sold 33,900

Finished goods 33,900
i Factory overhead variance is set up and closed to cost of goods sold.
Factory overhead variance 400
Cost of goods sold 400

Required:

a Journal entries
b T-account for work in process
c Simple cost sheets
 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

MULTIPLE CHOICE

The following statements are given for your evaluation:

 Cost accounting is identified more with management accounting rather than with financial
accounting.
 In a cost system, the perpetual inventory method is used so that for journal entries involving
production costs, the corresponding entries are also made on cost accumulation records
 The adoption of the perpetual inventory method implies that physical count of inventories need not
be made inasmuch as inventory figures can be arrived based on the balances per subsidiary records
 A company may use either job order or process costing for its products regardless of the nature of
the manufacturing processes involved
1. Factory overhead absorbed in costing is equal to the balance of factory overhead control account
a All of the statements are true c The last three are false
b All of the statements are false d None of the above

Silver Corp. provides you with the following information on its 2014 operations:

Inventories, Jan. 1, 2014

Finished goods P 12,000
Work in process 15,000
Materials 19,000
Materials purchases P 60,000
Purchase returns 3,000
Direct materials issued 35,000
Direct labor cost 29,000
Factory overhead control 15,100
Sales (at 60% gross profit based on cost) 94,400
Increase in work in process inventory 8,500
Factory overhead rate: 50% of direct labor cost

2. How much must be the change in finished goods inventory?

a Increase by P 11,000 c Increase by P 28,000
b Increase by P 32,240 d None of the above
Solution:
- First you need to compute for the value of COGS. Since Gross profit is based on cost, our COGS represents
100%.
- After arriving at the value of COGS, we can compute already for the missing elements.
- Factory overhead to be used in the computation should be the applied factory overhead. Since it
represents 50% of Direct labor cost, we just multiple 29,000 by 50%.

Sales (at 60% gross profit based on cost) 94,400 160%

COGS (94,400/ 160%) 59,000 100%
Gross profit 60%

Direct materials issued 35,000

Direct labor cost 29,000
Applied factory overhead (29,000*50%) 14,500 take note that what is charge to production is the applied FOH
Manufacturing cost 78,500
Work in process, beg 0
TGPIP 78,500
Work in process, end 8,500
Cost of goods manufactured 70,000
Finished goods beg 0
TGAFS 70,000 There’s an increase of 11,000 on the
Finished goods, end 11,000 finished goods account.
COGS 59,000
 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

3. Radios, Inc. started to maintain a factory ledger in 2014 due to its decentralized operations. The following
information is given for 2014:
Solution: note: only those in red font color will be included in the computation.
Assets transferred to factory books P 165,000
Materials purchases 100,000
Purchase returns (8,000)
Factory payroll (prepared by main office)
Direct labor 35,000
Indirect labor 11,000
Contributions by employer for factory employees
SSS and Medicare 2,400
Pag-IBIG 1,000
Workmen’s compensation premiums 700
Replenishment of factory petty cash fund 3,500
Materials issued:
Direct materials 78,000
Indirect materials 16,500
Main office payroll 28,500
Factory machinery and equipment purchased by main office 55,000
Factory overhead applied 38,000
Cost of goods manufactured 120,000
Sales 160,000
Cost of goods sold (95,000)
Cost of sales returns 6,000
Sales returns 14,600
Depreciation of factory fixed assets 17,500
Factory overhead control 39,500
Selling expenses control 22,000
General and administrative expenses control 30,700

What must be the ending balance of the inter-office accounts as of December 31, 2014?

a P 257,600 c P 275,100
b P 260,600 d Not given
4. Malinis Co. uses the job order cost system. Its work in process account for April, 2014 shows the following:
Work in Process
Balance, beg. 25,000 Finished goods 125,450
Direct materials 50,000
Direct labor 40,000
Factory overhead ?

Factory overhead is applied to production at 75% of direct labor cost. The work in process as of April 30
represents the cost of Job No. 456 which has been charged with direct labor cost of P 3,000 and Job. No. 789 which
has been charged with applied overhead of P 2,400. Factory overhead incurred amounted to P 31,000.

The cost of direct materials charged to Job Order Nos. 456 and 789 totalled:

a P 4,200 b P 4,500 c P 7,500 d P 8,700

Solution:
To arrive at the missing amount in our Work in process account (FOH) = 40,000 (DLC) * .75 = 30,000
Total debit to the work in process account = (25,000+50,000+40,000+30,000) = 145,000
Total credit to the work in process account 125,450
Work in process, balance 19,550
Total should be 19,550
Total cost of Job no. 456 Total cost of Job no. 789 as per computation
Direct Materials 8,700 above.
Direct Labor 3,000 3,200 (2,400/.75) Total WIP 19,550
- DL 6,200
- Foh 4,650
- DM 8,700
 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

Factory overhead 2,250 (3,000*.75) 2,400

5. Charming Co. provides you with the following information:

2014
August 31 September 30
Inventories
Materials P? P 50,000
Work in process 80,000 95,000
Finished goods 60,000 78,000

September transactions:
Raw materials purchases P 46,000
Factory overhead (75% of direct labor cost) 63,000
Selling and adm. Expenses (12.5% of sales) 25,000
Factory overhead recorded 62,800
Net income for September, 2014 25,200
Materials inventory (beginning), cost of goods manufactured and cost of goods sold (normal) must be:
Raw Materials Invty., beg Cost of Goods Manufactured Cost of Goods Sold
a P 40,000 P 168,200 P 150,200
b P 40,200 P 168,000 P 150,000
c P 40,000 P 168,000 P 150,000
d None of the above

Solution:

Income statement:
Sales (25,000/12.5%) 200,000
Cost of sales 149,800
Gross profit 50,200
Selling and adm expenses 25,000
Net income 25,200

- Since selling and adm. Expense represents 12.5% of sales, we can compute for the value of sales by
dividing 25,000 by its percentage of 12.5%
- After computing for the value of sales, we can already complete our income statement specifically cost of
goods sold.
- Cost of goods sold actual is P 149,800, but since we have factory overhead variance, we need to adjust
COGS with the effect of the variance. (see computations)
- You can solve the problem by computing the problem upward.

Raw materials inv. Beg 40,000

Purchases 46,000
RMAFU 86,000
Raw materials inv. End 50,000
RMU 36,000
DL (63,000/ 75%) 84,000
FOH Applied 63,000
Manufacturing Cost 183,000
WIP, beg 80,000
TGPIP 263,000
WIP, end 95,000
COGM 168,000
FG, beg 60,000
TGAFS 228,00
 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

FG, end 78,000

COGS (normal) 150,000
FOH variance (favourable variance) 200 (foh actual – 62,800; foh applied – 63,000)
COGS (actual) 149,800

Items 6 to 8:
Work in process of Sumikat Corp. on May 1, 2014 is given as follows:
Per general ledger (Work in process control account) P 22,250
Per cost sheets: (subs. Record) Job 451 Job 452
Direct materials P 6,000 P 8,000
Direct labor 3,000 2,500
9,000 10,500 19,500
Factory costs for May, 2014:
Job 451 Job 452 Job 453 Job 454
Direct materials P 3,000 P 2,000 P 6,000 P 4,500
Direct labor 1,000 1,500 2,600 2,000

Factory overhead is charged to production based on direct labor costs. Jobs 451 and 452 are completed during the
month.

6. What is the factory overhead rate?

a 50% b 33 1/3 % c 75% d Not given
Solution:
Per work in process control account 22,250
Per subs. Record (DM + DL) (14,000+5,500) 19,500
Factory overhead applied 2,750
Factory overhead rate based on direct labor cost (2,750/5,500) 50%

7. Cost of goods manufactured for the month must be equal to:

a P 35,000 b P 31,000 c P 27,000 d Not given

For May 1, 2014

Job no. 451 job no. 452
Direct materials 6,000 8,000
Direct labor 3,000 2,500
Factory overhead (50% of DLC) 1,500 1,250

For the month of May

Direct materials 3,000 2,000
Direct labor 1,000 1,500
Factory overhead (50% of DLC) 500 750

Cost of goods manufactured 15,000 16,000 = 31,000

8. Work in process as of May 31 must be:

a P 17,400 b P 15,000 c P 19,700 d Not given

For the month of May Job no. 453 Job no. 454
Direct materials 6,000 4,500
Direct labor 2,600 2,000
Factory overhead (50% of DLC) 1,300 1,000
Work in process, balance 9,900 7,500 = 17,400
 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

9. The following information pertains to Arp Co.’s manufacturing operations:

2014
Inventories March 1 March 31
Direct materials P 36,000 P 30,000
Work in process 18,000 12,000
Finished goods 54,000 72,000

Additional information for the month of March, 2014:

Direct materials purchased P 84,000
Direct labor payroll 60,000
Direct labor rate per hour 7.5
Factory overhead rate per direct labor hour 10
How much must be the prime cost, conversion cost and cost of goods manufactured for the month?
Prime cost Conversion cost Cost of goods manufactured
a P 90,000 P 60,000 P 236,000
b 150,000 140,000 296,000
c 144,000 170,000 230,000
d 150,000 140,000 236,000

Solution:
Raw materials inv. Beg 36,000
Purchases 84,000
RMAFU 120,000
Raw materials inv. End 30,000
RMU 90,000
DL 60,000
FOH Applied (60,000/7.5= 8,000 dlh * 10.00) 80,000
Manufacturing Cost 230,000
WIP, beg 18,000
TGPIP 248,000
WIP, end 12,000
COGM 236,000

Prime cost = 90,000+ 60,000 = 150,000

Conversion cost = 60,000 + 80,00 = 140,000
10. Axe Co. has a job order cost system. The following debits (credits) appear in the work in process account for
March, 2014:
Description Amount
March 1 Balance P 2,000
31 Direct materials 12,000
31 Direct labor 8,000
31 Factory overhead 6,400
31 To finished goods (24,000)

Axe applies overhead to production at a predetermined rate of 80% based on direct labor cost. Job No. 9, the only
job still in process at the end of March, 2014, has been charged with direct labor of P 1,000. The amount of direct
materials charged to Job No 9 was:

a P 12,000 c P 2,600
b P 4,400 d P 1,500

Solution

Description Amount
March 1 Balance P 2,000
 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 2 – INTRODUCTION TO THE COST SYSTEM; JOB ORDER COSTING

31 Direct materials 12,000

31 Direct labor 8,000
31 Factory overhead 6,400
31 To finished goods (24,000)
Balance 4,400
Less :
Direct labor (1,000)
Factory overhead applied (1,000*80%) (800)
Direct materials P 2,600