PROCESS COSTING

PROBLEM 1
Tip Top Painting Company has the following production data for January:
 Beginning work in process, 0 units
 Units transferred out, 35,000
 Units in ending work in process, 4,000, which are 30% complete for conversion costs
Materials are added only at the beginning of the process. Compute equivalent units of production for both
materials and conversion costs.

Solution
Equivalent Units
QUANTITIES Physical Units Materials Conversion Costs

Units to be accounted for

Work in process, January 1 0
Started into production 39,000
Total units 39,000

Units accounted for

Transferred out 35,000 35,000 35,000
Work in process, January 31 4,000 4,000 1,200 (4,000 × 30%)
Total units 39,000 39,000 36,200

PROBLEM 2
The Kirkland Department of Delta Manufacturing began the month of December with beginning work in process
of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs. Units transferred
out are 10,000 units. Ending work in process contains 1,000 units that are 100% complete as to materials and
60% complete as to conversion costs. Compute the equivalent units of production for materials and conversion
costs for the month of December.

Solution
Equivalent Units
QUANTITIES Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, December 1 4,000
Started into production 7,000
Total units 11,000
Units accounted for
Transferred out 10,000 10,000 10,000
Work in process, December 31 1,000 1,000 600 (1,000 × 60%)
Total units 11,000 11,000 10,600

PROBLEM 3
White Supplies’ total material costs are P50,000 and total conversion costs are P65,000. Equivalent units of
production for materials are 10,000, and 3,250 for conversion costs. Compute the unit costs for materials,
conversion costs, and total manufacturing costs for the month.

Solution
COSTS
Unit costs Materials Conversion Costs Total
Costs incurred P50,000 P65,000 P115,000
Equivalent units 10,000 3,250
Unit costs P 5.00 P 20.00 P25.00

PROBLEM 4
Apoly Manufacturing Company has the following production data for January.
Ending Work in Process
Beginning Units Started into % Complete as to
Work in Process Production Units Conversion Cost
-0- 6,500 700 30%
Compute the physical units for January.
Solution
Beginning work in process -0-
Started into production 6,500
Total units to be accounted for 6,500

Transferred out 5,800

Ending work in process 700
Total units accounted for 6,500

PROBLEM 4
Sequal Company has the following production data for June: units transferred out 46,000, and ending work in
process 4,000 units that are 100% complete for materials and 30% complete for conversion costs. Unit materials
cost is P5 and unit conversion cost is P11. Determine the costs to be assigned to the units transferred out and
the units in ending work in process.

Solution
Work in process, June 30
Materials (4,000 × P5) P20,000
Conversion costs (4,000 × 30% × P11) 13,200
Total cost of work in process P33,200

Units transferred out (46,000 × P16) P736,000

PROBLEM 5
Dirt Cleaners, Inc. has the following production data for January:
Transferred out 50,000 units
Ending work in process 6,000 units

The units in ending work in process are 100% complete for materials and 60% complete for conversion costs.
There is no beginning work in process. Materials cost is P10 per unit and conversion costs are P11 per unit.
Determine the costs to be assigned to the units transferred out and the units in ending work in process.

Solution
Cost Reconciliation Schedule
Costs accounted for
Transferred out (50,000 × P21) P1,050,000
Work in process, June 30
Materials (6,000 × P10) P 60,000
Conversion costs (3,600* × P11) 39,600 99,600
Total costs P1,149,600
*(6,000 x 60%)

PROBLEM 6
Baez Manufacturing Company produces a product in two departments: (1) Mixing and (2) Finishing. The
company uses a process cost accounting system.

(a) Purchased raw materials for P50,000 on account.

(b) Raw materials requisitioned for production were:

Direct materials
Mixing department P20,000
Finishing department 14,000

(c) Incurred labor costs of P80,000.

(d) Factory labor used:

Mixing department P48,000
Finishing department 32,000

(e) Manufacturing overhead is applied to the product based on machine hours used in each department:
Mixing department—600 machine hours at P45 per machine hour.
Finishing department—500 machine hours at P30 per machine hour.

(f) Units costing P66,000 were completed in the Mixing Department and were transferred to the Finishing
Department.
(g) Units costing P60,000 were completed in the Finishing Department and were transferred to finished goods.

(h) Finished goods costing P30,000 were sold on account for P45,000.

Instructions
Prepare the journal entries to record the preceding transactions for Baez Manufacturing Company.

Solution
(a) Raw Materials Inventory............................................................... 50,000
Accounts Payable ............................................................... 50,000
(Purchase of raw materials on account)

(b) Work in Process—Mixing ............................................................. 20,000

Work in Process—Finishing ......................................................... 14,000
Raw Materials Inventory ...................................................... 34,000
(To record materials used in production)

(c) Factory Labor............................................................................... 80,000

Wages Payable ................................................................... 80,000
(To record payroll liability)

(d) Work in Process—Mixing ............................................................. 48,000

Work in Process—Finishing ......................................................... 32,000
Factory Labor ...................................................................... 80,000
(To assign factory labor to production)

(e) Work in Process—Mixing (600 × P45) ......................................... 27,000

Work in Process—Finishing (500 × P30)...................................... 15,000
Manufacturing Overhead ..................................................... 42,000
(To assign overhead to processes)

(f) Work in Process—Finishing ......................................................... 66,000

Work in Process—Mixing .................................................... 66,000
(To record transfer of units to the Finishing Department)

(g) Finished Goods Inventory ............................................................ 60,000

Work in Process—Finishing ................................................ 60,000
(To record transfer of units to finished goods)

(h) Accounts Receivable ................................................................... 45,000

Sales ................................................................................... 45,000
(To record sale of finished goods on account)

Cost of Goods Sold ...................................................................... 30,000

Finished Goods Inventory ................................................... 30,000
(To record cost of goods sold)

PROBLEM 7
The Pasta Factory manufactures spaghetti sauce through two production departments: Cooking and Packaging.
For the month of February, the work in process accounts show the following debits:
Cooking Packaging
Beginning work in process P -0- P 6,000
Materials 40,000 21,000
Labor 21,000 9,000
Overhead 25,000 14,000
Costs transferred in 50,000
Instructions
Journalize the February transactions that involved the work in process accounts.

Solution
Work in Process—Cooking ................................................................... 40,000
Work in Process—Packaging ............................................................... 21,000
Raw Materials Inventory............................................................... 61,000
Work in Process—Cooking ................................................................... 21,000
Work in Process—Packaging ............................................................... 9,000
Factory Labor............................................................................... 30,000
Work in Process—Cooking .................................................................. 25,000
Work in Process—Packaging ............................................................... 14,000
Manufacturing Overhead.............................................................. 39,000
Work in Process—Packaging ............................................................... 50,000
Work in Process—Cooking .......................................................... 50,000

PROBLEM 8
Hardy Company manufactures a single product by a continuous process, involving two production departments.
The records indicate that P120,000 of direct materials were issued to and P200,000 of direct labor was incurred
by Department 1 in the manufacture of the product. The factory overhead rate is P15 per machine hour; machine
hours were 6,000 in Department 1. Work in process in the department at the beginning of the period totaled
P35,000; and work in process at the end of the period was P25,000.

Instructions
Prepare entries to record
(a) The flow of costs into Department 1 for
(1) direct materials
(2) direct labor
(3) overhead
(b) The transfer of production costs to Department 2.

Solution
(a) (1) Work in Process—Dept. 1 ................................................... 120,000
Raw Materials Inventory ............................................. 120,000

(2) Work in Process—Dept. 1 ................................................... 200,000

Factory Labor ............................................................. 200,000

(3) Work in Process—Dept. 1 ................................................... 90,000

Manufacturing Overhead (6,000 × P15) ...................... 90,000

(b) Work in Process—Dept. 2 ............................................................ 420,000*

Work in Process—Dept. 1 ................................................... 420,000

*P35,000 + P120,000 + P200,000 + P90,000 – P25,000 = P420,000

PROBLEM 9
Muffy Painting Company has the following production data for March.

Ending Work in Process

Beginning Units % Complete as to
Month Work in Process Transferred Out Units Conversion Cost
March 2,000 42,000 8,000 80%

Instructions
Compute equivalent units of production for March for both materials and conversion costs. Materials are entered
at the beginning of the process.

Solution
Equivalent Units
Quantities Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, March 1 2,000
Started into production 48,000
Total units 50,000
Units accounted for
Transferred out 42,000 42,000 42,000
Work in process, March 31 8,000 8,000 6,400 (8,000 × 80%)
Total units 50,000 50,000 48,400

PROBLEM 10
The Nitrogen Fixation Department of Tomco Manufacturing began the month of December with beginning work
in process of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs.
Units transferred out are 10,000 units. Ending work in process contains 3,000 units that are 100% complete as
to materials and 60% complete as to conversion costs.

Instructions
Compute the equivalent units of production for materials and conversion costs for the month of December.

Solution
Equivalent Units
Quantities Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, December 1 4,000
Started into production 9,000
Total units 13,000
Units accounted for
Transferred out 10,000 10,000 10,000
Work in process, December 31 3,000 3,000 1,800 (3,000 × 60%)
Total units 13,000 13,000 11,800

PROBLEM 11
At Crenshaw Company, materials are entered at the beginning of each process. Work in process inventories,
with the percentage of work done on conversion, and production data for its Painting Department in selected
months are as follows:
Beginning Work In Process Ending Work In Process
Percentage Units Completed Percentage
Month Units Completed and Transferred Out Units Completed
July -0- — 10,000 500 90%
Sept. 2,500 20% 9,000 4,000 70%
Ex. 160 (cont.)
Instructions
(a) Compute the physical units for July.
(b) Compute the equivalent units of production for materials and conversion costs for September.

Solution
(a) COMPUTATION OF PHYSICAL UNITS
July
Beginning work in process -0-
Started into production 10,500
Total units to be accounted for 10,500
Transferred out 10,000
Ending work in process 500
Total units accounted for 10,500

(b) COMPUTATION OF EQUIVALENT UNITS

Equivalent Units
Units accounted for Physical Units Materials Conversion Costs
Transferred out 9,000 9,000 9,000
Work in process, Sept. 30 4,000 4,000 2,800 (4,000 × .70)
Total equivalent units 13,000 13,000 11,800

PROBLEM 12
The Assembly Department uses a process cost accounting system and a weighted-average cost flow
assumption. The department adds materials at the beginning of the process and incurs conversion costs
uniformly throughout the process. During July, P190,000 of materials costs and P133,000 in conversion costs
were charged to the department. The beginning work in process inventory was P108,000 on July 1, comprised
of P80,000 of materials costs and P28,000 of conversion costs.

Other data for the month of July are as follows:

Beginning work in process inventory, 7/1 25,000 units (40% complete)
Units completed and transferred out 90,000 units
Ending work in process inventory, 7/31 10,000 units (20% complete)

Instructions
Answer the following questions and show computations to support your answers.
1. How many physical units have to be accounted for in July?
2. What are the equivalent units of production for materials and for conversion costs for the month of July?
3. What is the total cost assigned to the 90,000 units that were transferred out of the process in July?
4. What is the total cost of the July 31 inventory?
Solution
1. Units transferred out 90,000
Work in process, July 31 10,000
Units accounted for 100,000

2. Equivalent units of production:

Equivalent Units
Physical Units Materials Conversion Costs
Transferred out 90,000 90,000 90,000
Work in process, July 31 10,000 10,000 2,000*
Total 100,000 100,000 92,000
*(10,000 × .20)

3. Materials cost per unit = P2.70 (P270,000* ÷ 100,000 units)

Conversion cost per unit = P1.75 (P161,000** ÷ 92,000 units)
Total unit cost P4.45
*(P80,000 + P190,000) **(P28,000 + P133,000)
Total cost assigned to units transferred out: 90,000 × P4.45 = P400,500

4. Total cost of July 31 inventory: (10,000 × P2.70) + (2,000 × P1.75) = P30,500

PROBLEM 13
The Finishing Department of Edwards Manufacturing has the following production and cost data for July:

1. Transferred out, 3,000 units.

2. Started 5,000 units that are 40% completed at July 31.
3. Materials added, P32,000; conversion costs incurred, P12,500.

Materials are entered at the beginning of the process. Conversion costs are incurred uniformly during the
process.

Instructions
(a) Compute the equivalent units of production for materials and conversion costs for the month of July.
(b) Compute unit costs and prepare a cost reconciliation schedule.

Solution
(a) Equivalent Units
Physical Units Materials Conversion Costs
Transferred Out 3,000 3,000 3,000
Work in Process, July 31 5,000 5,000 2,000*
Total 8,000 8,000 5,000
*(5,000 × .40)

(b) Materials cost per unit = P4.00 (P32,000 ÷ 8,000 units)

Conversion cost per unit = 2.50 (P12,500 ÷ 5,000 units)
P6.50

Cost Reconciliation Schedule

Costs accounted for
Transferred out (3,000 × P6.50) P19,500
Work in process, July 31
Materials (5,000 × P4.00) P20,000
Conversion costs (2,000 × P2.50) 5,000 P25,000
Total costs P44,500

PROBLEM 14
Massey Corporation uses a process cost system and the weighted-average cost flow assumption. Production
begins in the Fabricating Department where materials are added at the beginning of the process and conversion
costs are incurred uniformly throughout the process. On March 1, the beginning work in process inventory
consisted of 20,000 units which were 60% complete and had a cost of P125,000, P95,000 of which were
materials costs. During March, the following occurred:

Materials added P230,000

Conversion costs incurred P129,000
 Units completed and transferred out in March 50,000
Units in ending work in process March 31 (20% complete) 15,000

Instructions
Answer the following questions and show the computations that support your answers.
1. What are the equivalent units of production for materials and conversion costs in the Fabricating Department
for the month of March?
2. What are the costs assigned to the ending work in process inventory on March 31?
3. What are the costs assigned to units completed and transferred out during March?

Solution
1. Equivalent units of production:
Equivalent Units
Physical Units Materials Conversion Costs
Transferred out 50,000 50,000 50,000
Work in process, March 31 15,000 15,000 3,000*
Total 65,000 65,000 53,000
*(15,000 × .20)

2. Materials unit cost P5 (P325,000* ÷ 65,000 units)

Conversion unit cost 3 (P159,000** ÷ 53,000 units)
Total unit cost P8
*(P95,000 + P230,000) **[(P125,000 – P95,000) + P129,000]
Costs assigned to work in process, March 31
Materials costs P75,000 (15,000 units × P5)
Conversion costs 9,000 (3,000 units × P3)
Total P84,000

3. Costs assigned to units completed and transferred out: 50,000 × P8 = P400,000

PROBLEM 15
Given below are the production data for Department No. 1 for the first month of operation:
Costs charged to Department 1:
Materials P12,000
Labor 2,800
Overhead 12,400

During this first month of operations, 4,000 units were started into production; 3,500 units were transferred out;
and the remaining 500 units are 100% completed with respect to materials and 60% complete with respect to
conversion costs.
Instructions
Compute the following:
(a) Unit materials cost.
(b) Equivalent units of conversion costs.
(c) Unit conversion cost.
(d) Total cost of 500 units in process at end of month.
(e) Total cost of 3,500 units transferred out.

Solution
(a) Unit materials cost: P12,000 ÷ 4,000 equivalent units for materials = P3.00.

(b) Equivalent units of conversion costs: 3,500 completed + (60% × 500) = 3,800 equivalent units of
conversion costs.

(c) Unit conversion cost: (P2,800 + P12,400) ÷ 3,800 equivalent units = P4.00.

(d) Total cost of 500 units in work in process

Materials, 500 × P3.00 = P1,500
Conversion costs, 300 × P4.00 = 1,200
Total P2,700

(e) Total cost of 3,500 transferred out units: 3,500 × (P3.00 + P4.00) = P24,500.
PROBLEM 16
The Assembly Department of Lynn Company has the following production and cost data at the end of May, 2008.
Production: 35,000 units started into production; 25,000 units transferred out and 10,000 units 100% completed
as to materials and 40% completed as to conversion costs.

Manufacturing Costs: Materials added at beginning of process, P70,000; labor, P100,000; overhead P74,000.

Instructions
Prepare a production cost report for the month of May.

Solution 172 (22–30 min.)

LYNN COMPANY
Assembly Department—Production Cost Report
For the Month Ended May 31, 2008

Equivalent Units
Physical Units Materials Conversion Costs
QUANTITIES
Units to be accounted for
Work in process, May 1 0
Started into production 35,000
Total units 35,000

Units accounted for

Transferred out 25,000 25,000 25,000
Work in process, May 31 10,000 10,000 4,000
Total units accounted for 35,000 35,000 29,000

COSTS
Unit costs Materials Conversion Costs Total
Costs in May P70,000 P174,000 P244,000
Equivalent units 35,000 29,000
Unit costs P2.00 P6.00 P8.00

Costs to be accounted for

Work in process, May 1 P 0
Started into production 244,000
Total costs P244,000

Cost Reconciliation Schedule

Costs accounted for
Transferred out (25,000 × P8) P200,000
Work in process, May 31
Materials (10,000 × P2) 20,000
Conversion Costs (4,000 × P6) 24,000 44,000
Total costs P244,000

STANDARD COSTING AND VARIANCE ANALYSIS

PROBLEM 1
The company estimates that production for the year will be 250,000 units of Product Fast. To produce these
units of Product Fast, the company expects to spend P600,000 for materials and P800,000 for labor. Compute
the estimates for (a) a standard cost and (b) a budgeted cost.

Solution
(a) Standards are stated as a per unit amount. Thus, the standards are materials P2.40, (P600,000 ÷ 250,000),
and labor P3.20, (P800,000 ÷ 250,000).

(b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are materials P600,000 and
labor P800,000.

PROBLEM 2
Labor data for making one pound of finished product in Perez Company are as follows: (1) Price—hourly wage
rate P10.00, payroll taxes P0.80, and fringe benefits P1.20. (2) Quantity—actual production time 1.1 hours, rest
periods and clean up 0.25 hours, and setup and downtime 0.15 hours.
Instructions
Compute the following.
(a) Standard direct labor rate per hour.
(b) Standard direct labor hours per pound.
(c) Standard cost per pound.

Solution
Standard direct labor rate per hour = P12.00 (P10.00 + P.80 + P1.20).
Standard direct labor hours per pound = 1.5 hours (1.1 +.25 +.15).
Standard labor cost per pound = P18.00 (P12.00 × 1.5).

PROBLEM 3
During March, Tile Company purchases and uses 6,600 pounds of materials costing P26,730 to make 3,000
tiles. Tile Company’s standard material cost per tile is P8 (2 pounds of material × P4.00). Compute the total,
price, and quantity material variances for Tile Company for March.

Solution
Total materials variance = P2,730 U, (6,600 × P4.05) – (6,000 × P4.00).
Materials price variance = P330 U, (6,600 × P4.05) – (6,600 × P4.00).
Materials quantity variance = P2,400 U, (6,600 × P4.00) – (6,000 × P4.00).

PROBLEM 4
During January, Ray Company incurs 1,850 hours of direct labor at an hourly cost of P9.60 in producing 1,000
units of its finished product. Ray’s standard labor cost per unit of output is P18 (2 hours x P9.00). Compute the
total, price, and quantity labor variances for Ray Company for January.

Solution
Total labor variance = P240 F, (1,850 × P9.60) – (2,000 × P9.00).
Labor price variance = P1,110 U, (1,850 × P9.60) – (1,850 × P9.00).
Labor quantity variance = P1,350 F, (1,850 × P9.00) – (2,000 × P9.00

PROBLEM 5
Manufacturing overhead data for the production of Product B by Barkley Company are as follows.

Overhead incurred for 68,000 actual direct labor hours worked P206,000
Overhead rate (variable P2.00; fixed P1.00) at normal capacity of
72,000 direct labor hours P3.00
Standard hours allowed for work done 68,000

Instructions
Compute the controllable and volume overhead variances.

Solution
Overhead controllable variance:
Actual Overhead – Overhead Budgeted
P206,000 – P208,000 = P2,000 F
[(68,000 × P2) + P72,000]

Overhead volume variance:

Fixed Overhead Rate × Normal Capacity Hours = Standard Hours Allowed
P1.00 × (72,000 – 68,000) = P4,000 U

PROBLEM 6
In October, Halo Inc. reports 42,000 actual direct labor hours, and it incurs P192,000 of manufacturing overhead
costs. Standard hours allowed for the work done is 40,000 hours. Halo’s predetermined overhead rate is P5.00
per direct labor hour. Compute the total manufacturing overhead variance.

Solution
Actual Overhead – Overhead Applied = Total overhead Variance
P192,000 – P200,000* = P8,000 F
*40,000 × P5 = P200,000

PROBLEM 7
Overhead data for Halo Inc. are given in BE 155. In addition, the flexible manufacturing overhead budget shows
that budgeted costs are P3.50 variable per direct labor hour and P75,000 fixed.
Compute the manufacturing overhead controllable variance.
Solution
Actual overhead – Overhead Budgeted = Overhead Controllable Variance
P192,000 – P215,000* = P23,000 F
*(40,000 × P3.50) + P75,000 = P215,000

PROBLEM 8
Using the data in Problem 6 and 7, compute the manufacturing overhead volume variance. Normal capacity
was 50,000 direct labor hours.

Solution
Fixed Overhead Rate × (Normal Capacity Hours – Standard Hours Allowed) = Overhead Volume Variance
P1.50/hr. × (50,000 – 40,000) = P15,000 U

PROBLEM 9
Auction Company purchased 6,000 units of raw material on account for P11,700, when the standard cost was
P12,000. Later in the month, Auction Company issued 5,600 units of raw materials for production, when the
standard units were 5,800.

Instructions
Journalize the transactions for Auction Company to account for this activity.
a
Solution
(a) Raw Materials Inventory.............................................................. 12,000
Materials Price Variance.................................................... 300
Accounts Payable.............................................................. 11,700

(b) Work in Process Inventory (5,800 × P2*) .................................... 11,600

Materials Quantity Variance .............................................. 400
Raw Materials Inventory (5,600 × P2) ............................... 11,200
*P2 = P12,000 ÷ 6,000 units

PROBLEM 10
Red Rope Co. incurred direct labor costs of P48,000 for 6,000 hours. The standard labor cost was P48,600.
During the month, Red Rope assigned 6,000 direct labor hours costing P48,000 to production. The standard
hours were 6,200.

Instructions
Journalize the transactions for Red Rope Co. to account for this activity.
a
Solution
(a) Factory Labor............................................................................ 48,600
Labor Price Variance ....................................................... 600
Wages Payable ............................................................... 48,000

(b) Work in Process Inventory (6,200 × P8.10*) ............................. 50,220

Labor Quantity Variance .................................................. 1,620
Factory Labor .................................................................. 48,600
*P8.10 = P48,600 ÷ 6,000 hours

PROBLEM 11
Jane Short manufactures and sells a nutrition drink for children. She wants to develop a standard cost per
gallon. The following are required for production of a 100 gallon batch:
1,960 ounces of lime Kool-Drink at P.12 per ounce
40 pounds of granulated sugar at P.60 per pound
63 kiwi fruit at P.50 each
100 protein tablets at P.90 each
4,000 ounces of water at P.003 per ounce

Jane estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the kiwis cannot
be used. Compute the standard cost of the ingredients for one gallon of the nutrition drink.

Solution
Ingredient Amount Per Gallon Standard Waste
Lime Kool-Drink 19.6 oz. 2%
 Sugar .40 lb. 20%
Kiwis .63 10%
Protein Tablets 1 0%
Water 40 oz. 0%

Standard Usage Standard Price Standard Cost

Lime Kool-Drink (a) 20.00 oz. P .12 P2.40
Sugar (b) .50 lb. .60 .30
Kiwis (c) .70 .50 .35
Protein Tablets 1 .90 .90
Water 40 oz. .003 .12
Standard Cost per Gallon P4.07

(a) .98X = 19.6 ounces X = 20.00

(b) .80X = .40 pounds X= .50
(c) .90X = .63 kiwis X= .70

PROBLEM 12
Deines, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each
tybo for P8. At the start of monthly production, Deines estimated 8,000 tybos would be produced in March.
Deines has established the following material and labor standards to produce one tybo:

Standard Quantity Standard Price

Direct materials 2.5 pounds P3 per pound
Direct labor 0.6 hours P10 per hour

During March 2009, the following activity was recorded by the company relating to the production of tybos:

1. The company produced 7,500 units during the month.

2. A total of 20,000 pounds of materials were purchased at a cost of P55,000.
3. A total of 20,000 pounds of materials were used in production.
4. 4,000 hours of labor were incurred during the month at a total wage cost of P44,000.

Instructions
Calculate the following variances for March for Deines, Inc.
(a) Materials price variance
(b) Materials quantity variance
(c) Labor price variance
(d) Labor quantity variance

Solution
(a) Materials price variance
= (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price)
= (20,000 × P2.75) – (20,000 × P3) = P5,000 favorable

(b) Materials quantity variance

= (Actual quantity used × Standard price) – (Standard quantity × Standard price)
= (20,000 × P3) – [(7,500 × 2.5) × P3] = P3,750 unfavorable

(c) Labor price variance

= (Actual hours x Actual rate) – (Actual hours × Standard rate)
= (4,000 × P11) – (4,000 × P10) = P4,000 unfavorable

(d) Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (4,000 × P10) – [(0.6 × 7,500) × P10] = P5,000 favorable

PROBLEM 13
Addison Industries provided the following information about its standard costing system for 2009:
Standard Data Actual Data
Materials 10 lbs. @ P4 per lbs. Produced 6,000 units
Labor 3 hrs. @ P21 per hr. Materials purchased 75,000 lbs. for P315,000
Budgeted fixed overhead P100,000 Materials used 61,500 lbs.
Budgeted variable overhead P30 per unit Labor worked 16,500 hrs. costing P330,000
Budgeted production 5,000 units Actual overhead P355,000

Instructions
Calculate the labor price variance and the labor quantity variance.
Solution
Labor price (rate) variance = (Actual hours x Actual rate) – (Actual hours x Standard rate)
= (16,500 × P20) – (16,500 × P21) = P16,500 favorable

Labor quantity (efficiency) variance

= (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (16,500 × P21) – (3 × 6,000 × P21) = P31,500 favorable

PROBLEM 14
Consider the information shown for Addison Industries in 13. Determine the amount of the materials price
variance. By how much will the materials price variances differ if the price variance is determined at the time of
production?

Solution
Identification of price variances at the time of purchase:
Materials price variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased x Standard
price)
= (75,000 × P4.20) – (75,000 × P4) = P15,000 Unfavorable

Identification of price variances at the time of production:

Materials price variance = (Actual quantity used × Actual price) – (Actual quantity used × Standard price)
= (61,500 × P4.20) – (61,500 × P4) = P12,300 Unfavorable

Difference = P15,000 – P12,300 = P2,700 Unfavorable

PROBLEM 15
Chee See Company estimated it would produce 6,200 buckets, though actual production was 6,000 during
August. The standard labor cost is 2 buckets per hour at P24.00 per hour. Actual cost per hour was P24.50 with
a total labor cost of P71,050. Determine the amounts of the labor price and the labor quantity variances for
August.

Solution
Labor price (rate) variance = (Actual hours × Actual rate) – (Actual hours × Standard rate)
= (2,900 × P24.50) – (2,900 × P24) = P1,450 Unfavorable

Labor quantity (efficiency) variance

= (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (2,900 × P24) – [(6,000 × 1/2 × P24) = P2,400 Favorable

PROBLEM 16
Hite Company has developed the following standard costs for its product for 2009:

HITE COMPANY
Standard Cost Card
Product A
Cost Element Standard Quantity × Standard Price = Standard Cost
Direct materials 4 pounds P3 P12
Direct labor 3 hours 8 24
Manufacturing overhead 3 hours 4 12
P48

The company expected to produce 25,000 units of Product A in 2009 and work 75,000 direct labor hours.

Actual results for 2009 are as follows:

 26,000 units of Product A were produced.
 Actual direct labor costs were P630,800 for 76,000 direct labor hours worked.
 Actual direct materials purchased and used during the year cost P283,500 for 105,000 pounds.
 Actual variable overhead incurred was P130,000 and actual fixed overhead incurred was P170,000.

Instructions
Compute the following variances showing all computations to support your answers. Indicate whether the
variances are favorable or unfavorable.
(a) Materials quantity variance.
(b) Total direct labor variance.
(c) Direct labor quantity variance.
(d) Direct materials price variance.
(e) Total overhead variance.
Solution
(a) Materials quantity variance = P3,000 unfavorable.
(AQ × SP) – (SQ × SP) = Materials quantity variance
(105,000 × P3) – (104,000 × P3) = P315,000 – P312,000 = P3,000 unfavorable
SQ = 26,000 × 4 = 104,000 pounds

(b) Total direct labor variance = P6,800 unfavorable.

(AH × AR) – (SH × SR) = Total direct labor variance
(76,000 × P8.30) – (78,000 × P8) = P630,800 – P624,000 = P6,800 unfavorable
SH = 26,000 × 3 = 78,000 direct labor hours

(c) Direct labor quantity variance = P16,000 favorable.

(AH × SR) – (SH × SR) = Direct labor quantity variance
(76,000 × P8) – (78,000 × P8) = P608,000 – P624,000 = P16,000 favorable

(d) Direct materials price variance = P31,500 favorable.

(AQ × AP) – (AQ × SP) = Direct materials price variance
(105,000 × P2.70) – (105,000 × P3) = P283,500 – P315,000 = P31,500 favorable

(e) Total overhead variance = P12,000 favorable.

(Actual overhead) – (Overhead applied) = Total overhead variance
(P130,000 + P170,000) – (78,000 × P4) = P300,000 – P312,000 = P12,000 favorable

Standard hours = 26,000 × 3 = 78,000 direct labor hours

PROBLEM 17
Feeney Company developed the following standard costs for its product for 2009:
FEENEY COMPANY
Standard Cost Card

Cost Elements Standard Quantity × Standard Price = Standard Cost

Direct materials 4 pounds P 5 P20
Direct labor 2 hours 10 20
Variable overhead 2 hours 4 8
Fixed overhead 2 hours 2 4
P52

The company expected to work at the 60,000 direct labor hours level of activity and produce 30,000 units of
product.

Actual results for 2009 were as follows:

 28,400 units of product were actually produced.
 Direct labor costs were P546,000 for 56,000 direct labor hours actually worked.
 Actual direct materials purchased and used during the year cost P554,400 for 115,500 pounds.
 Total actual manufacturing overhead costs were P340,000.

Instructions
Compute the following variances for Feeney Company for 2009 and indicate whether the variance is favorable
or unfavorable.
1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
5. Overhead controllable variance.
6. Overhead volume variance.

Solution
1. Direct materials price variance = P23,100 favorable.
(AQ × AP) – (AQ × SP) = Materials price variance
(115,500 × P4.80) – (115,500 × P5) = P554,400 – P577,500 = P23,100 favorable

2. Direct materials quantity variance = P9,500 unfavorable.

(AQ × SP) – (SQ × SP) = Materials quantity variance
(115,500 × P5) – (113,600 × P5) = P577,500 – P568,000 = P9,500 unfavorable
SQ = 28,400 products × 4 lbs = 113,600 lbs.
3. Direct labor price variance = P14,000 favorable.
(AH × AR) – (AH × SR) = Labor price variance
(56,000 × P9.75) – (56,000 × P10) = P546,000 – P560,000 = P14,000 favorable

4. Direct labor quantity variance = P8,000 favorable.

(AH × SR) – (SH × SR) = Labor quantity variance
(56,000 × P10) – (56,800 × P10) = P560,000 – P568,000 = P8,000 favorable
SH = 28,400 units × 2 hrs = 56,800 direct labor hours

5. Overhead controllable variance = P7,200 favorable.

Actual overhead – Budgeted overhead for = Controllable overhead variance
standard hours allowed
P340,000 – P347,200 = P7,200 favorable

Budgeted overhead for 56,800 direct labor hours allowed.

Variable overhead (56,800 × P4) = P227,200
Fixed overhead = 120,000
P347,200

6. Overhead volume variance = P6,400 unfavorable.

Volume variance: (60,000 – 56,800) × P2/SH = P6,400 unfavorable

PROBLEM 18
Spaulding, Inc. uses standard costing for its one product, baseball bats. The standards call for 3 board-feet of
wood at P1.40 per board-foot, and 45 minutes of work at P12 per hour per bat. Total manufacturing overhead
costs were estimated at P5,250, of which the variable portion was P0.50 per bat and the fixed portion was P0.75
per bat with an estimate of 4,200 bats to be produced. Spaulding identifies price variances at the earliest possible
point in time.

During March, the company had the following results:

Direct labor used = 3,200 hours at a cost of P37,760
Actual manufacturing overhead fixed costs = P3,000
Actual manufacturing overhead variable costs = P2,050
Bats produced = 4,000
Instructions
Compute the following variances for March.
1. Labor quantity variance
2. Total labor variance
3. Overhead controllable variance
4. Overhead volume variance

Solution
1. Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (3,200 × P12) – [(3/4 × 4,000) × P12] = P2,400 Unfavorable

2. Total labor variance = (Actual hours × Actual rate) – (Standard hours × Standard rate)
= (3,200 × P11.80) – [(3/4 × 4,000) × P12] = P1,760 Unfavorable

3. Overhead controllable variance = Actual overhead – Overhead budgeted

= (P2,050 + P3,000) – [(P0.50 × 4,000) + P3,150]
= P100 Favorable

4. Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate
= [(4,200 × 3/4) – 3,000] × P1.00* = P150 Unfavorable
*P.75 ÷ 3/4 hr./bat

PROBLEM 19
Thomas, Inc. manufactures widgets for distribution. The standard costs for the manufacture of widgets follow:
Standard Costs Actual Costs
Direct materials 3 lbs. per widget at 15,500 lbs. at P34
P35 per pound per pound

Direct labor 2.5 hours per widget 11,250 hours at

at P11 per hour P11.80 per hour

Factory overhead Variable cost, P24/widget P120,750 variable cost

Fixed cost, P40/widget P190,625 fixed cost
Budgeted factory overhead was P320,000. Overhead applied is based on widgets produced. The company
estimated that 5,000 widgets would be produced; however, only 4,800 were produced.

Instructions
Calculate the following amounts.
1. Rate at which total factory overhead is applied
2. Materials price variance
3. Total materials variance
4. Overhead volume variance
5. Overhead controllable variance

Solution
1. Budgeted overhead cost/budgeted activity = P320,000 ÷ 5,000 = P164 per widget

2. Materials price variance = (Actual quantity × Actual price) – (Actual quantity × Standard price)
= (15,500 × P34) – (15,500 × P35)
= P15,500 Favorable

3. Total materials variance = (Actual quantity × Actual price ) – (Standard quantity × Standard
price)
= (15,500 × P34) – [(3 × 4,800) × P35] = P23,000 Unfavorable

4. Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate
= (12,500 – 12,000) × P16*
= P8,000 Unfavorable
*P40 ÷ 2.5

5. Overhead controllable variance = Actual overhead – Overhead budgeted

= [P120,750 + P190,625] – [(P24 × 4,800) + (P40 × 5,000)]
= P3,825 Favorable

PROBLEM 20
American Sporting Goods Company manufactures aluminum baseball bats that it sells to university athletic
departments. It has developed the following per unit standard costs for 2009 for each baseball bat:
Manufacturing
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour
Standard Price P4.00 P10.00 P6.00
Unit Standard Cost P8.00 P5.00 P3.00

In 2009, the company planned to produce 80,000 baseball bats at a level of 40,000 hours of direct labor.

Actual results for 2009 are presented below:

1. Direct materials purchases were 164,000 pounds of aluminum which cost P688,800.
2. Direct materials used were 145,000 pounds of aluminum.
3. Direct labor costs were P379,270 for 39,100 direct labor hours actually worked.
4. Total manufacturing overhead was P235,000.
5. Actual production was 76,000 baseball bats.

Instructions
(a) Compute the following variances:
1. Direct materials price.
2. Direct materials quantity.
3. Direct labor price.
4. Direct labor quantity.
5. Total overhead variance.
a
(b) Prepare the journal entries to record the transactions and events in 2009.

Solution
(a) 1. Direct materials price variance = P32,800 Unfavorable.
(AQ × AP) – (AQ × SP)
(164,000 × P4.20) – (164,000 × P4.00) = P688,800 – P656,000 = P32,800
2. Direct materials quantity variance = P28,000 Favorable.
(AQ × SP) – (SQ × SP)
(145,000 × P4.00) – (152,000* × P4.00) = P580,000 – P608,000 = P28,000
*SQ = 76,000 × 2 pounds = 152,000 pounds
 3. Direct labor price variance = P11,730 Favorable.
(AH × AR) – (AH × SR)
(39,100 × P9.70) – (39,100 × P10.00) = P379,270 – P391,000 = P11,730
4. Direct labor quantity variance = P11,000 Unfavorable.
(AH × SR) – (SH × SR)
(39,100 × P10.00) – (38,000* × P10.00) = P391,000 – P380,000 = P11,000
*SH = 76,000 × 1/2 hour = 38,000 hours
5. Actual overhead – Overhead applied = Total overhead variance.
P235,000 – P228,000* = P7,000 Unfavorable
*SH = 38,000 × P6.00 = P228,000

Solution
a
(b) 1. Raw Materials Inventory .......................................................... 656,000
Materials Price Variance .......................................................... 32,800
Accounts Payable............................................................. 688,800
(To record purchase of materials)

2. Work in Process Inventory ....................................................... 608,000

Materials Quantity Variance ............................................. 28,000
Raw Materials Inventory ................................................... 580,000
(To record issuance of direct materials)

3. Factory Labor .......................................................................... 391,000

Labor Price Variance ........................................................ 11,730
Wages Payable ................................................................ 379,270
(To record direct labor costs)

4. Work in Process Inventory ....................................................... 380,000

Labor Quantity Variance ......................................................... 11,000
Factory Labor .................................................................. 391,000
(To assign factory labor to jobs)

5. Manufacturing Overhead ......................................................... 235,000

Accounts Payable/Cash etc. ............................................. 235,000
(To record overhead incurred)

6. Work in Process Inventory ....................................................... 228,000

Manufacturing Overhead .................................................. 228,000
(To assign overhead to jobs)

7. Finished Goods Inventory (76,000 × P16.00) .......................... 1,216,000

Work in Process Inventory ................................................ 1,216,000
(To record transfer of completed work to finished goods)

ACTIVITY BASED COSTING

PROBLEM 1
Beckley Corporation has provided the following data from its activity-based costing accounting system:

Indirect factory wages ............... P16,000

Factory equipment depreciation P193,000

Distribution of Resource Consumption across Activity Cost Pools:

Customer Product
Activity Cost Pools Orders Processing Other Total
Indirect factory wages .............. 48% 47% 5% 100%
Factory equipment
depreciation .......................... 61% 25% 14% 100%

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs
that are not assigned to products.

Required:
a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that
 would be allocated to the Product Processing activity cost pool. Show your work!
b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that
would NOT be assigned to products. Show your work!

Ans:

a. Allocations to the Product Processing activity cost pool:

Indirect factory wages (47% × P16,000) ................ P 7,520
Factory equipment depreciation (25% × P193,000)
........................................................................... 48,250
Total ...................................................................... P55,770

b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to
products.
Indirect factory wages (5% × P16,000) .................. P 800
Factory equipment depreciation (14% × P193,000)
........................................................................... 27,020
Total ...................................................................... P27,820

PROBLEM 2

Desilets Corporation has provided the following data from its activity-based costing accounting system:

Supervisory wages ........ P94,000

P128,00
Factory utilities............... 0

Distribution of Resource Consumption across Activity Cost Pools:

Unit
Batch Processi
Activity Cost Pools Set-Ups ng Other Total
Supervisory wages ... 34% 64% 2% 100%
Factory utilities.......... 49% 35% 16% 100%

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs
that are not assigned to products.

Required:
a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated
to the Unit Processing activity cost pool. Show your work!
b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be
assigned to products. Show your work!

Ans:

a. Allocations to the Unit Processing activity cost pool:

Supervisory wages (64% × P94,000) . P 60,160
Factory utilities (35% × P128,000) ...... 44,800
Total ................................................... P104,960

b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to
products.
Supervisory wages (2% × P94,000) ... P 1,880
Factory utilities (16% × P128,000) ...... 20,480
Total ................................................... P22,360

PROBLEM 3
. The following data have been provided by Hooey Corporation from its activity-based costing accounting
system:

Supervisory wages ........ P46,000

P199,00
Factory utilities............... 0
Distribution of Resource Consumption across Activity Cost Pools:
 Product
Change- Machinin
Activity Cost Pools Overs g Other Total
Supervisory wages ... 59% 33% 8% 100%
Factory utilities.......... 18% 69% 13% 100%

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs
that are not assigned to products.

Required:
a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated
to the Machining activity cost pool. Show your work!
b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be
assigned to products. Show your work!

Ans:

a. Allocations to the Machining activity cost pool:

Supervisory wages (33% × P46,000) . P 15,180
Factory utilities (69% × P199,000) ...... 137,310
Total ................................................... P152,490

b. As stated in the problem, the costs allocated to the “Other” cost pool are not assigned to
products.
Supervisory wages (8% × P46,000) ... P 3,680
Factory utilities (13% × P199,000) ...... 25,870
Total ................................................... P29,550

PROBLEM 4
Fidler & Jenkins PLC, a consulting firm, uses an activity-based costing in which there are three activity
cost pools. The company has provided the following data concerning its costs and its activity based
costing system:

Costs:
Wages and salaries ....... P620,000
Travel expenses ............ 140,000
Other expenses ............. 120,000
Total .............................. P880,000

Distribution of resource consumption:

Working On Business
Engagemen Developme
Activity Cost Pools ts nt Other Total
Wages and salaries . 60% 10% 30% 100%
Travel expenses ...... 50% 40% 10% 100%
Other expenses ....... 35% 25% 40% 100%

Required:
a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool?
b. How much cost, in total, would be allocated to the Business Development activity cost pool?
c. How much cost, in total, would be allocated to the Other activity cost pool?

Ans:

All three parts can be answered using a first-stage allocation of costs.

Working On Business
Engagement Developme
s nt Other Total
Wages and salaries P372,000 P 62,000 P186,000 P620,000
Travel expenses ..... 70,000 56,000 14,000 140,000
Other expenses ...... 42,000 30,000 48,000 120,000
Total ....................... P484,000 P148,000 P248,000 P880,000
PROBLEM 5
. Dane Housecleaning provides housecleaning services to its clients. The company uses an activity-
based costing system for its overhead costs. The company has provided the following data from its
activity-based costing system.

Activity Cost Pool Total Cost Total Activity

Cleaning ................ P263,784 34,800 hours
Job support ............ 145,180 7,000 jobs
Client support ........ 4,774 220 clients
Other ..................... 170,000 Not applicable
Total ...................... P583,738

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

One particular client, the Hoium family, requested 45 jobs during the year that required a total of 90
hours of housecleaning. For this service, the client was charged P2,000.

Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the activity cost pools. Round off all
calculations to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Hoium family. Round
off all calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL costs are
allocated to customers on the basis of cleaning hours. Compute the margin for the Hoium family.
Round off all calculations to the nearest whole cent.

Ans:

a. The computation of the activity rates follow:

Total Cost Total Activity Activity Rates
Cleaning ........ P263,784 34,800 hours P7.58 per hour
Job support .... P145,180 7,000 jobs P20.74 per job
Client support P4,774 220 clients P21.70 per client

b. The customer margin for the family is computed as follows:

Client charges........... P2,000.00
Costs:
Cleaning ................ P682.20
Job support ............ 933.30
Client support......... 21.70 1,637.20
Customer margin ...... P 362.80

Computations for costs:

Cleaning: 90 hours × P7.58 per hour = P682.20
Job support: 45 jobs × P20.74 per job = P933.30
Client support: 1 client × P21.70 per client = P21.70

c. The margin if all costs are allocated on the basis of cleaning hours:

Predetermined overhead rate = P583,738 ÷ 34,800 hours = P16.77 per hour

Client charges................ P2,000.00

Allocated costs* ............. 1,509.30
Customer margin ........... P 490.70

* 90 hours × P16.77 per hour = P1,509.30

PROBLEM 6
The Kamienski Cleaning Brigade Company provides housecleaning services to its clients. The
company uses an activity-based costing system for its overhead costs. The company has provided the
following data from its activity-based costing system.

Total
Activity Cost Pool Cost Total Activity
Cleaning ............. P185,752 21,700 hours
 Job support ......... 171,532 6,100 jobs
Client support ..... 15,124 760 clients
Other .................. 240,000 Not applicable
Total ................... P612,408

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
One particular client, the Whiddon family, requested 15 jobs during the year that required a total of 60
hours of housecleaning. For this service, the client was charged P1,170.

Required:
a. Using the activity-based costing system, compute the customer margin for the Whiddon family.
Round off all calculations to the nearest whole cent.
b. Assume the company decides instead to use a traditional costing system in which ALL costs are
allocated to customers on the basis of cleaning hours. Compute the margin for the Whiddon family.
Round off all calculations to the nearest whole cent.

Ans:

a. The first step is to compute activity rates:

Total Cost Total Activity Activity Rates
Cleaning ............. P185,752 21,700 hours P8.56 per hour
Job support ......... P171,532 6,100 jobs P28.12 per job
Client support ..... P15,124 760 clients P19.90 per client

The customer margin for the family is computed as follows:

Client charges........... P1,170.00
Costs:
Cleaning ................ P513.60
Job support ............ 421.80
Client support......... 19.90 955.30
Customer margin ...... P 214.70

Computations for costs:

Cleaning: 60 hours × P8.56 per hour = P513.60
Job support: 15 jobs × P28.12 per job = P421.80
Client support: 1 client × P19.90 per client = P19.90

b. The margin if all costs are allocated on the basis of cleaning hours:

Predetermined overhead rate = P612,408 ÷ 21,700 hours = P28.22 per hour

Client charges........... P1,170.00

Allocated costs* ........ 1,693.20
Customer margin ...... (P523.20)

* 60 hours × P28.22 per hour = P1,693.20

PROBLEM 7
Cabio Company manufactures two products, Product C and Product D. The company estimated it
would incur P119,100 in manufacturing overhead costs during the current period. Overhead currently is
applied to the products on the basis of direct labor hours. Data concerning the current period's
operations appear below:

Product C Product D
Estimated volume .................... 400 units 3,000 units
Direct labor hours per unit ....... 1.20 hours 1.30 hour
Direct materials cost per unit ... P4.00 P22.80
Direct labor cost per unit .......... P12.00 P13.00

Required:

a. Compute the predetermined overhead rate under the current method, and determine the unit
product cost of each product for the current year.
b. The company is considering using an activity-based costing system to compute unit product costs
for external financial reports instead of its traditional system based on direct labor hours. The
 activity-based costing system would use three activity cost pools. Data relating to these activities for
the current period are given below:
Expected Activity
Estimate
d
Overhea Product Product
Activity Cost Pool d Costs C D Total
Machine setups .. P 10,440 60 120 180
Purchase orders . 78,000 820 1,180 2,000
General factory ... 30,660 480 3,900 4,380
Total ................... P119,100

Determine the unit product cost of each product for the current period using the activity-based costing
approach.

Ans:

a. The expected total direct labor hours during the period are computed as follows:
Product C: 400 units × 1.2 hours per unit ... 480 hours
Product D: 3,000 units × 1.3 hours per unit 3,900 hours
Total direct labor hours ............................... 4,380 hours

Using these hours as a base, the predetermined overhead using direct labor hours would be:

Estimated overhead cost ÷ Estimated direct labor-hours =

P119,100 ÷ 4,380 DLHs = P27.19 per DLH

Using this overhead rate, the unit product costs are:

Product Product
C D
Direct materials................... P 4.00 P22.80
Direct labor ......................... 12.00 13.00
Manufacturing overhead ..... 32.63 35.35
Total unit product cost ........ P48.63 P71.15

b. The activity rates for each activity cost pool are as follows:
Estimated Expecte
Overhead d Activity
Costs Activity Rate
Machine setups .. P10,440 180 P58.00
Purchase orders . P78,000 2,000 P39.00
General factory ... P30,660 4,380 P7.00

The overhead cost charged to each product is:

Product C Product D
Activity Amount Activity Amount
Machine setups ..... 60 P 3,480 120 P 6,960
Purchase orders .... 820 31,980 1,180 46,020
General factory ...... 480 3,360 3,900 27,300
P80,28
Total overhead cost P38,820 0

Overhead cost per unit:

Product C: P38,820 ÷ 400 units = P97.05 per unit
Product D: P80,280 ÷ 3,000 units = P26.76 per unit

Using activity based costing, the unit product cost of each product would be:

Product Product
C D
Direct materials......................... P 4.00 P22.80
Direct labor ............................... 12.00 13.00
Manufacturing overhead ........... 97.05 26.76
 Total unit product cost .............. P113.05 P62.56

PROBLEM 8

Danton Company manufactures two products, Product F and Product G. The company expects to
produce and sell 600 units of Product F and 3,000 units of Product G during the current year. The
company uses activity-based costing to compute unit product costs for external reports. Data relating to
the company's three activity cost pools are given below for the current year:
Expected Activity
Estimated
Overhead
Activity Cost Pool Costs Product F Product G Total
Machine setups .. P13,720 140 140 280
Purchase orders . P74,730 630 960 1,590
General factory ... P15,000 600 2,400 3,000

Using the activity-based costing approach, determine the overhead cost per unit for each product.

Ans:

The activity rates for each activity cost pool are as follows:

Overhead
Estimated Expected Activity
Activity Cost Pool Costs Activity Rate
Machine setups ........ P13,720 280 P49.00
Purchase orders ....... P74,730 1,590 P47.00
General factory ......... P15,000 3,000 P5.00

The overhead cost charged to each product is:

Product F Product G
Activity Amount Activity Amount
Machine setups ........ 140 P 6,860 140 P 6,860
Purchase orders ....... 630 29,610 960 45,120
General factory ......... 600 3,000 2,400 12,000
P39,47
Total overhead cost .. 0 P63,980

Overhead cost per unit:

Product F: P39,470 ÷ 600 units = P65.78 per unit
Product G: P63,980 ÷ 3,000 units = P21.33 per unit

PROBLEM 9
Kretlow Corporation has provided the following data from its activity-based costing accounting system:

Activity Cost Pools Total Cost Total Activity

product design
Designing products ... P700,502 3,746 hours
Setting up batches .... P12,400 620 batch set-ups
Assembling products P125,440 8,960 assembly hours

Compute the activity rates for each of the three cost pools. Show your work!

Ans:

Total Activity
Activity Cost Pools Total Cost Activity Rate
Designing products ........ P700,502 3,746 P187
Setting up batches ......... P12,400 620 P20
Assembling products ...... P125,440 8,960 P14

PROBLEM 10
Data concerning three of Kilmon Corporation's activity cost pools appear below:
 Total
Activity Cost Pools Cost Total Activity
Assembling products ..... P150,300 8,350 assembly hours
P1,177,5 product design
Designing products ........ 35 7,597 hours
Setting up batches ......... P14,400 600 batch set-ups

Compute the activity rates for each of the three cost pools. Show your work!

Ans:

Total Activity
Activity Cost Pools Total Cost Activity Rate
Assembling products ...... P150,300 8,350 P18
Designing products ........ P1,177,535 7,597 P155
Setting up batches ......... P14,400 600 P24

PROBLEM 11
Doles Corporation uses the following activity rates from its activity-based costing to assign overhead
costs to products.

Activity Cost Pools Activity Rate

Setting up batches .............. P98.54 per batch
Processing customer orders P42.00 per customer order
Assembling products .......... P3.53 per assembly hour

Data concerning two products appear below:

Product Product
K52W X94T
Number of batches ................... 55 73
Number of customer orders ...... 9 17
Number of assembly hours ....... 697 402

Required:
How much overhead cost would be assigned to each of the two products using the company's activity-
based costing system?

Ans:
Product Product
K52W X94T
Setting up batches ................. P5,419.70 P7,193.42
Processing customer orders .. 378.00 714.00
Assembling products .............. 2,460.41 1,419.06
Total overhead cost................ P8,258.11 P9,326.48

PROBLEM 12
Desjarlais Corporation uses the following activity rates from its activity-based costing to assign
overhead costs to products.
Activity Cost Pools Activity Rate
Setting up batches .................... P32.22 per batch
Assembling products ................ P6.13 per assembly hour
Processing customer orders ..... P72.75 per customer order

Data concerning two products appear below:

Product Product
S96U Q06F
Number of batches .................. 78 24
Number of assembly hours ...... 412 178
Number of customer orders ..... 53 18

Required:
a. How much overhead cost would be assigned to Product S96U using the company's activity-based
costing system? Show your work!
b. How much overhead cost would be assigned to Product Q06F using the company's activity-based
 costing system? Show your work!

Ans:

a. Product S96U
Setting up batches (78 batches × P32.22 per
batch) ................................................................. P2,513.16
Assembling products (412 assembly hours ×
P6.13 per assembly hour) .................................. 2,525.56
Processing customer orders (53 customer orders
× P72.75 per customer order) ............................ 3,855.75
Total overhead cost ............................................... P8,894.47

b. Product Q06F
Setting up batches (24 batches × P32.22 per
batch) ................................................................. P 773.28
Assembling products (178 assembly hours ×
P6.13 per assembly hour) .................................. 1,091.14
Processing customer orders (18 customer orders
× P72.75 per customer order) ............................ 1,309.50
Total overhead cost ............................................... P3,173.92

PROBLEM 13
Archie Corporation uses the following activity rates from its activity-based costing to assign overhead
costs to products.

Activity Cost Pools Activity Rate

Setting up batches .............. P16.68 per batch
Processing customer orders P98.60 per customer order
Assembling products .......... P7.89 per assembly hour

Last year, Product X26X involved 18 batches, 4 customer orders, and 103 assembly hours.

Required:
How much overhead cost would be assigned to Product X26X using the company's activity-based
costing system? Show your work!

Ans:
Setting up batches (18 batches × P16.68 per
batch) .................................................................. P 300.24
Processing customer orders (4 customer orders ×
P98.60 per customer order) ................................ 394.40
Assembling products (103 assembly hours ×
P7.89 per assembly hour) ................................... 812.67
Total overhead cost................................................ P1,507.31

PROBLEM 14
IGL Draperies makes custom draperies for homes and businesses. The company uses an activity-
based costing system for its overhead costs. The company has provided the following data concerning
its annual overhead costs and its activity cost pools.

Overhead costs:
Production overhead P140,000
Office expense.......... 140,000
Total ......................... P280,000

Distribution of resource consumption:

Making Job Othe
Activity Cost Pools Drapes Support r Total
Production overhead 60% 20% 20% 100%
Office expense.......... 15% 55% 30% 100%

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining
costs. The amount of activity for the year is as follows:
 Activity Cost Pool Annual Activity
Making drapes .... 3,000 yards
Job support ......... 140 jobs
Other .................. Not applicable

Required:
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the
table below:
Making Job
Drapes Support Other Total
Production overhead
Office expense .........
Total .........................

b. Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job
Support activity cost pools by filling in the table below:
Making Job
Drapes Support
Production overhead
Office expense .........
Total .........................

c. Prepare an action analysis report in good form of a job that involves making 85 yards of drapes and
has direct materials and direct labor cost of P2,990. The sales revenue from this job is P6,000. For
purposes of this action analysis report, direct materials and direct labor should be classified as a
Green cost; production overhead as a Red cost; and office expense as a Yellow cost.

Ans:
a. First-stage allocation
Making Job
Drapes Support Other Total
Production overhead P84,000 P28,000 P28,000 P140,000
Office expense.......... 21,000 77,000 42,000 140,000
Total ......................... P105,000 P105,000 P70,000 P280,000
Activity ...................... 3,000 yards 140 jobs

b. Activity rates (costs divided by activity)

Making Job
Drapes Support
Activity ...................... 3,000 yards 140 jobs

Production overhead P28.00 P200.00

Office expense.......... 7.00 550.00
Total ......................... P35.00 P750.00

c. Overhead cost of the job.

Making Job
Drapes Support Total
Activity ........................... 85 1
Production overhead ..... P2,380 P200 P2,580
Office expense............... 595 550 1,145
Total .............................. P2,975 P750 P3,725

Sales ....................................... P6,000

Green costs:
Direct materials and labor ..... 2,990
Green margin........................... 3,010
Yellow costs:
Office expense ...................... 1,145
Yellow margin .......................... 1,865
Red costs:
Production overhead ............. 2,580
Red margin .............................. (P 715)