Advance Financial Accounting and Reporting (AFAR)

COST ACCOUNTING
COST ACCUMULATION

1. The following information pertains to the August manufacturing activities of Griss Co.:

Beginning work-in-process (BWIP) P12,000

Ending work-in-process (EWIP) 10,000
Cost of goods manufactured (CGM) 97,000
Direct materials issued to production 20,000

Factory overhead is assigned at 150% of direct labor.

What was the August direct labor?

a. P30,000 b. P30,800 c. P45,000 d. P50,000

Questions 2-5 are based on the following information.

Madtack Company’s beginning and ending inventories for the month of November 2010 are

November 1 November 30

Direct materials P 67,000 P 62,000

Work-in-process 145,000 171,000
Finished goods 85,000 78,000

Production data for November follows:

Direct labor P200,000
Actual factory overhead 132,000
Direct materials purchased 163,000
Transportation in 4,000
Purchase returns and Allowances 2,000
Madtack uses one factory overhead control account and charges factory overhead to production at
70% of direct
labor cost. The company does not formally recognize over-or under applied overhead until year-end.

2. Madtack Company’s prime cost for November is

a. P370,000 b. P363,000 c. P170,000 d. 368,000

3. Madtack Company’s total manufacturing cost for November is

a. P502,000 b. P503,000 c. P363,000 d. P510,000

4. Madtack Company’s cost of goods transferred to finished goods inventory for November is

a. P469,000 b. P477,000 c. P495,000 d. P484,000

5. Madtack Company’s net charge to factory overhead control for the month of November is

a. P8,000 debit, over applied.

b. P8,000 debit, under applied.
c. P8,000 credit, over applied.
d. P8,000 credit, under applied
 6. Computation of Total Manufacturing Cost, Cost of Goods Manufactured, and Cost of Goods Sold.
During the past year, the Rocco Company incurred these costs: direct labor, $2,500,000; factory overhead,
$4,000,000; and direct materials purchases, $1,500,000. Inventories were costed as follows:

Beginning Ending
Finished goods.................................................................................... $250,000 $300,000
Work in process.................................................................................. 450,000 550,000
Materials............................................................................................. 75,000 125,000

Required:

(1) Calculate total manufacturing cost for the year.

(2) Calculate the cost of goods manufactured for the year.
(3) Calculate the cost of goods sold for the year.

7.
Income Statement Relationships. The following data are available for three companies at the end of their
fiscal years:

Company Alpha:
Finished goods, April 1..................................................... $ 400,000
Cost of goods manufactured........................................ 2,600,000
Sales............................................................................. 3,500,000
Gross profit on sales.................................................................. 35%
Finished goods inventory, March 31......................................... ?

Company Beta:
Freight in........................................................................... $ 12,000
Purchases returns and allowances.............................................. 22,000
Marketing expense..................................................................... 85,000
Finished goods, December 31.................................................... 65,000
Cost of goods sold..................................................................... 550,000
Cost of goods available for sale................................................. ?

Company Chi:
Gross profit........................................................................ $ 264,000
Cost of goods manufactured........................................ 612,000
Finished goods, January 1.......................................................... 34,000
Finished goods, December 31.................................................... 26,000
Work in process, January 1........................................................ 18,000
Work in process, December 31.................................................. 12,000
Sales............................................................................. ?

Required: Determine the amounts indicated by the question marks. (AICPA adapted)

JOB ORDER COSTING

8. Cajun Company uses a job order costing system. During April 20x6, the following cost appeared in the
Work in Process Inventory account:

Beginning balance P24,000

Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
Cost of goods manufactured 185,000

Cajun Company applies overhead on the basis of direct labor cost. There was only one job left in Work
in Process at the end of April which contained P5,600 of overhead. What amount of direct material was
included in this job?

a. P4,400 b. P4,480 c. P6,920 d. P8,000

 Questions 9 to 11 are based on the following data: Alpha Co. uses a job costing system. At the
beginning of January, the company had two jobs in process with the following cost:
Direct Material Direct Labor Overhead
Job #456 P3,400 P510 P255
Job #461 1,100 289 ?

Alpha pays its workers P8.50 per hour and applies overhead on a direct labor hour basis.

9. Refer to Alpha Company. What is the overhead application rate per direct labor hour?

a. P0.50 b. P2.00 c. P4.25 d. P30.00

10. Refer to Alpha Company. How much overhead was included in the cost of Job #461 at the beginning
of January?

a. P144.50 b. P153.00 c. P2,200.00 d. P2,456.50

11. Refer to Alpha Company. During January, Alpha’s employees worked on Job #649. At the end of the
month, P714 of overhead had been applied to this job. Total Work in Process at the end of the month was
P6,800 and all other jobs had a total cost of P3,981. What amount of direct material is included in Job
#649?

a. P677.00 b. P1,391.00 c. P2,142.00 d. P4,658.00

12. Products at Redd Manufacturing are sent through two production department: Fabricating and
Finishing. Overhead is applied to products in the Fabricating Department based on 150 percent of direct
labor cost and P18 per machine hour in Finishing. The following information is available about Job #297:
Fabricating Finishing
Direct material P1,590 P580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
Overhead applied 429 ?

Total Job Costs on Job #297:

a. P2,305.00 b. P898.00 c. P3,418.50 d. P3,203.00

13. Lucy Sportsware manufactures a specialty line of T-shirts using a job-order cost system. During
March, the following cost were incurred in completing Job ICU2: direct materials, P13,700; direct labor,
P4,800; administrative, P1,400; and selling, P5,600. Factory overhead was applied at the rate of P25 per
machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in 7,000 good shirt, the
cost of goods sold per unit would be

a. P6.50 b P6.30 c. P5.70 d. P5.50

14.
Job Order Cost Schedule. Winkel Woodcrafters produces special-order wood products. The company uses
job order costing for pricing and cost accumulation purposes. The following costs were incurred on two
recent jobs:

Cost Item........................................................ Job Pine-20 Job Birch-10

Direct materials:
Issued......................................... $6,500 $8,000
Returned..................................... 500 0
Indirect materials used............................ 500 400
Direct labor............................................. $9,000 $15,000
Direct labor rate...................................... $9 per hour $10 per hour
Overhead application rate....................... $10 per direct labor hour $15 per direct labor hour

The company adds a 50% markup on cost in determining the amount to charge for each job.

Required: Prepare a schedule showing the cost and the amount to be charged for each job.
15.
Job Order Cycle Entries. The following completed cost sheets were prepared for three jobs that were in
production during April in the Special Order Division of Byron Company:

Job 097 Job 781 Job 946

Direct materials............................................................................ $ 6,000 $2,700 $4,100
Direct labor.................................................................................. 9,200 7,300 8,200
Applied factory overhead............................................................. 6,900 5,475 6,120
Allowance for commercial expenses and profit........................... 11,050 7,738 9,210

On April 1, Job 097 was 75% complete as to materials, labor, and overhead. It was finished during the month.
The other jobs were started and finished during the month. Jobs 097 and 946 were sold on account at the
end of the month.

Required: Prepare general journal entries to be recorded in April to accumulate these job costs for Work in
Process as well as for Finished Goods and for the sale of the two jobs.

16.
Manufacturing Costs. Teddy Company is to submit a bid on the production of 5,500 vases. It is estimated
that the cost of materials will be $8,500, and the cost of direct labor will be $12,000. Factory overhead is
applied at 50% of direct labor cost in the Molding Department and at $7.50 per direct labor hour in the
Finishing Department. Of the above direct labor, it is estimated that 500 direct labor hours at a cost of
$4,000 will be required in Finishing. The company wishes a markup of 100% of its total production cost.

Required: Determine the following:

(1) Estimated cost to produce.

(2) Estimated prime cost.
(3) Estimated conversion cost.
(4) Bid price.

PROCESS COSTING

17. On November 1, Yankee Company had 20,000 units of WIP in Department No. 1 which were 100%
complete as to material cost and 20% complete as to conversion cost. During November, 160,000 units
were started in Department No. 1 and 170,000 units were completed and transferred to Department No. 2.
WIP on November 30 was 100% complete as to material cost and 40% complete as to conversion costs.
By what amount would the equivalent units for conversion costs for the month of November differ if the
FIFO method were used instead of the weighted-average method?

a. 20,000 decrease. b. 16,000 decrease. c. 8,000 decrease. d. 4,000 decrease.

Questions #18-20 are based on the following information.

The Cutting Department is the first stage of Mark Company’s production cycle. BWIP for this
department was 80% complete as to conversion costs. EWIP was 50% complete. Information as to
conversion cost in the Cutting Department for January is presented in the next column

Units CC
WIP at January 1 25,000 P 22,000
Units started and costs incurred
during January 135,000 143,000
Units completed and transferred to
next department during January 100,000

18. Using the FIFO method, what was the conversion cost of WIP in the Cutting Department at January
31?

a. P22,000 b. P33,000 c. P39,000 d. P78,000

19. What is the per-unit conversion cost of goods started last period and completed this period?

a. P22,000 / 25,000 b. P1.10 c. P28,500 / 25,000 d. P1.30

20. What is the unit conversion cost of goods started this period and completed this period using the
weighted-average method?

a. P1.10 b. P1.14 c. P1.27 d. P1.30

21. Roy Company manufactures Product X in a two-stage production cycle in Departments A and B.
Materials are added at the beginning of the process in Department B. Roy uses the weighted-average
method. BWIP (6,000 units) for Department B was 50% complete as to conversion costs. EWIP (8,000
units) was 75% complete. During February, 12,000 units were completed and transferred out of
Department B. An analysis of the costs relating to WIP and production activity in Department B for
February follows:

Transferred-In Cost Material Cost Conversion Cost

WIP, February 1:
Cost attached P12,000 P2,500 P1,000
Feb. activity:
Cost added 29,000 5,500 5,000

The total cost per equivalent unit transferred out for February of Product X was:
a. P2.75 b. P2.78 c. P2.82 d. P3.01

Questions No. 22-26 are based on the following information. This data is based on the processing
operations of HDG Enterprises. Assume that process conversion cost are uniform but a number of
materials are added at different points in the process. Material 1 is added at the beginning of the
process. The transferred-in cost are added at the 20% point in the process. Material 2 is added
uniformly from the 50% to the 70% points in the process. Material 3 is added at the 75% point in the
process, and Material 4 is added uniformly at the 90% to the 100% points in the process. The January
BWIP was 10,000 units 60% complete, 60,000 units were added, and EWIP was 20,000 units 95%
complete

22. What was the number of Material 3 EUP for the month?

FIFO Weighted Average

a. 50,000 60,000
b. 60,000 60,000
c. 60,000 70,000
d. 70,000 70,000

23. What was the number of Material 1 EUP for the month?

FIFO Weighted Average

a. 50,000 60,000
b. 60,000 60,000
c. 60,000 70,000
d. 70,000 70,000

24. What was the number of conversion EUP for the month?

FIFO Weighted Average

a. 50,000 60,000
b. 63,000 69,000
c. 60,000 70,000
d. 53,000 59,000
 25. What was the number of Material 2 EUP for the month?

FIFO Weighted Average

a. 50,000 60,000
b. 60,000 70,000
c. 65,000 70,000
d. 63,000 67,000

26. What was the number of Material 4 EUP for the month?

FIFO Weighted Average

a. 50,000 60,000
b. 60,000 60,000
c. 65,000 70,000
d. 70,000 70,000

Questions #27 to 34 are based on the following information.

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining
industry. The
following information pertains to operations for the month of May.

Units
Beginning work-in-process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The
ending inventory
was 90% complete for materials and 40% complete for conversion costs.

Cost pertaining to the month of May are as follows:

 Beginning inventory costs are materials, P54,560; direct labor, P20,320; and factory
overhead, P15,240.
 Cost incurred during May are materials used, P468,000; direct labor, P182,880; and factory
overhead, P391,160.

27. Using the first-in, first-out (FIFO) method, the equivalent units of production (EUP) for materials are

a. 97,600 units b. 104,000 units c.107,200 units d. 113,600 units

28. Using the FIFO method, the equivalent units of production for conversion cost are

a. 85,600 units b. 95,200 units c. 98,400 units d. 101,600 units

29. Using the FIFO method, the equivalent unit cost of materials for May is

a. P4.12 b. P4.50 c. P4.60 d. P4.80

30. Using the FIFO method, the equivalent unit conversion cost for May is

a. P5.65 b. P5.83 c. P6.00 d. P6.20

31. Using the FIFO method, the total cost of units in the ending work-in-process inventory at May 31 is

a.P153,168 b. P154,800 c. P155,328 d. P156,960

32. Using the weighted-average method, the equivalent unit cost of materials for May is

a. P4.12 b. P4.50 c. P4.60 d. P5.68

33. Refer to the following preceding question 27. Using the weighted-average method, the equivalent unit
conversion cost for May is
a. P5.65 b. P5.83 c. P6.00 d. P6.20

34. Refer to the information preceding question 27. Using the weighted-average method, the total cost of
the units in the ending work-in-process inventory at May 31 is
a. P153,168 b. P154,800 c. P155,328 d. P156,960

35-1.
Calculation of Unit CostsCAverage Costing Method. Barcelona Beach Products reports the following data
for the first department in its production process:

Units in process at beginning of period (all materials; 3/4 labor

and factory overhead)...................................................................................................... 5,000
Units started in process....................................................................................................................... 35,000
Units transferred out........................................................................................................................... 33,000
Units still in process (all materials; 1/2 labor and factory overhead)................................................. 5,000
Units completed but not yet transferred to Finished Goods............................................................... 2,000

Related data were:

Work in Process at Added During

Beginning of Period Period
Materials........................................................................................ $100,000 $ 304,000
Labor.............................................................................................. 125,400 407,100
Factory overhead........................................................................... 173,500 407,750
Total............................................................................... $398,900 $ 1,118,850

Required: Using the average costing method:

(1) Compute the unit cost for materials, labor, and factory overhead.
(2) Determine the cost of the work in process ending inventory.

35-1.
Journal Entries for Process Cost System. Xavier Corporation uses process costing in its two production
departments. A separate work in process account is kept in the general ledger for each production
department. The following data relate to operations for the month of March:

Beginning Added
Inventory During March
Direct materials cost: Department A $ 5,000 $25,000
Department B 3,000 20,000
Direct labor cost: Department A 6,000 40,000
Department B 4,500 35,000
Applied overhead: Department A 12,000 90,000
Department B 4,500 35,000

During March, 45,000 units with a cost of $5 each were transferred from Department A to Department B, and
40,000 units with a cost of $9 each were transferred from Department B to finished goods inventory.

Required: Prepare the appropriate general journal entries to record the cost charged to the producing
departments during March and the cost of units transferred from Department A to Department B and
Department B to finished goods inventory.
 PRODUCTION LOSSES / SPOILAGE

36. A manufacturing firm has a normal spoilage rate of 4% of the units inspected; anything over this rate
is considered abnormal spoilage. Final inspection occurs at the end of the process. The firm uses the FIFO
inventory flow assumption. The processing for the current month was as follow:

Beginning work-in-process inventory 24,600 units

Units entered into production 470,400 units
Good units completed (460,800)units
Units failing final inspection (22,600) units
Ending work-in-process inventory 11,600 units

The equivalent units assigned to normal and abnormal spoilage for the current month would be

Normal Spoilage Abnormal Spoilage

a. 18,432 units 4,168 units
b. 18,816 units 3,784 units
c. 19,336 units 3,264 units
d. 19,800 units 2,800 units

37. Forming Department is the first of a two-stage production process. Spoilage is identified when the
units complete the forming process. Cost of spoiled units are assigned to units completed and transferred
to the second department in the period spoilage is identified. The following concerns Forming’s
conversion cost:

Conversion Units Cost

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

What was Forming’s weighted-average conversion cost transferred to the second department?

a. P59,850 b. P64,125 c. P67,500 d. P71,250

38. In a job-order accounting application, P45,000 has been charged to a job (P25,000 of direct materials,
P10,000 direct labor, and P10,000 applied overhead). The job yields 500 units of a product, of which 100
are rejected as spoiled with no salvage value. The cost of the spoilage is determined to be P9,000. If the
firm wishes to use this job as the basis for setting a spoilage standard for comparison with future work,
the conceptually superior way to express the spoilage rate is

a. 20% of total inputs. b. 25% of Good outputs. c. 90% of labor inputs. d. 36% of
material inputs.

39. In its April 2002 production, Hern Corp., which does not use a standard cost system, incurred total
production loss of P90,000 of which Hern attributed P60,000 to normal spoilage and P30,000 to abnormal
spoilage. Hern should account for this spoilage as

a. Period cost of P90,000. c. Period cost of P60,000 and inventoriable cost

of P30,000.
b. Inventoriable cost of P90,000. d. Inventoriable cost of P60,000 and period cost of
P30,000.

40. A company uses a job-order cost system in accounting for its manufacturing operations Because its
processes are labor oriented, it applies manufacturing overhead on the basis of direct labor hours (DLH).
Normal spoilage is defined as 4% of the units passing inspection. The company includes a provision for
normal spoilage cosat in its budgeted manufacturing overhead and manufacturing overhead rate. Data
regarding a job consisting of 30,000 units are presented below:
 Volume Data
Total units in job 30,000
Units failing inspection (spoiled) 1,500
Good units passing inspection 28,500

Cost Data: Per Unit Total Cost

Direct materials P18.00 P540,000
Direct Labor- 2 DLH
@P16.00/DLH 32.00 960,000
Manufacturing overhead –
2 DLH @P30.00/DLH 60.00 1,800,000
Total P110.00 P3,300,000

The 1,500 units that failed inspection required.25 direct labor hours per unit to rework the units into
good units. What is the proper charge to the loss from abnormal spoilage account?

a. P1,440 b. P4,140 c. P3,450 d. Zero.

Questions #41-42 are based on the following information.

JC Company employs a process cost system. A unit of product passes through three departments –
molding, assembly, and finishing – before it is complete. Finishing Department Information for May
follow:

Units
Work-in-process inventory—May 1 1,400
Units transferred in from the assembly
Department 14,000
Units spoiled 700
Units transferred out to finished goods
inventory 11,200

Raw materials are added at the beginning of the processing in the Finishing Department without
changing the number of units being processed.

WIP was 70% complete as to conversion on May 1 and 40% complete as to conversion on May 31. All
spoilage was discovered at final inspection before the units were transferred to finished goods; 560 of
the units spoiled were within the limit considered normal.

The JC Company employs the weighted-average costing method. The equivalent units and the current
costs per equivalent unit of production for each cost factor are as follows?

EUP Current Cost per EUP

Transferred-In 15,400 P5.00
Raw Materials 15,400 1.00
Conversion Cost 13,300 3.00
Total cost per EUP P9.00

41. The cost of production transferred to the finished goods inventory is

a. P100,800 b. P105,840 c. P107,100 d. P102,060

42. The cost assigned to WIP on May 31 is

a. P28,000 b. P21,000 c. P25,200 d. P30,240

Standard Costing
1. Throop Company had budgeted 50,000 units of output using 50,000 units of raw materials at a total
material cost of P100,000. Actual output was 50,000 units product, requiring 45,000 units of raw
materials at a cost of P2.10 per unit. The direct material price variance and usage variance were

Price Usage
a. P4,500 unfavorable P10,000 favorable
b. P5,000 favorable P10,500 unfavorable
c. P5,000 unfavorable P10,500 favorable
d. P10,000 favorable P4,500 unfavorable

2. Information on Rex Co’s direct material costs for May is as follows:

Actual quantity of direct purchased and used ………........................ 30,000 lbs.

Actual cost of direct materials………………………......................... P84,000
Unfavorable direct materials usage 3,000
variance………………………… 29,000 lbs.
Standard quantity of direct materials allowed for May production….

For the month of May, what was Rex’s direct materials price variance?

a. P2,800 favorable c. P6,000 unfavorable

b. 2, 800 unfavorable d. 6,000 favorable

3. Information on Kennedy Company’s direct material costs is as follows:

Standard unit price…………………………………………………… P 3.60

Actual quantity purchased…………………………………………… 1,600
Standard quantity allowed for actual production……………………. 1,450
Materials purchase price variance – favorable………………………. P 240

What was the actual purchase price per unit, rounded to the nearest centavo?

a. P3.06 b. P3.11 c. P3.45 d. P3.75

4. Information on Barber Company’s direct labor costs for the month of January is as follows:

Actual; direct labor hours……………………………………………. 34,500

Standard direct labor hours………………………………………….. 35,000
Total direct labor payroll…………………………………………….. P241,500
Direct labor efficiency variance – favorable………………………… P 3,200

What is barber’s direct rate variance?

a. P17,000 unfavorable c. P21,000 unfavorable

b. P20,700 unfavorable d. P21,000 favorable

5. Lion Company’s direct labor costs for the month of January were as follows:

Actual direct labor hours…………………………………………….. 20,000

Standard direct labor hours………………………………………….. 21,000
Direct labor rate variance – (unfav.)………………………………… P 3,000
Total payroll…………………………………………………………. P126,000

What was Lion’s direct labor efficiency variance?

a. P6,000 favorable c. P6,300 favorable

b. P6,150 favorable d. P6,450 favorable

6. Tub Co. uses a standard cost system. The following information per6tains to direct labor for product
B for the month of October:
 Standard hours allowed for actual product……………………….. 2,000
Actual rate paid per hour………………………………………….. P 8.40
Standard rate per hour……………………………………………. P8.00
Labor efficiency variance……………………………………….. P1,600 U

What were the actual hours worked?

a. 1,800 b. 1,810 c. 2,190 d. 2,200

7. Pale Manufacturing Co. has an expected production level of 175.000 product units for 2001. Fixed
factory overhead is P450,000 and the company applies factory overhead on the basis of expected
production level at the rate of P5.20 per unit. The variable overhead cost per unit is:

a. P2.57 b. P2.63 c. P2.93 d. P3.02

8. Negros Co.’s factory overhead rate is pre-determined at the start of the fiscal period based on
expected actual production capacity. Budgeted factory overhead is P175,000 for a normal capacity
of 50,000 units and P225,000 for a maximum capacity of 75,000 units. At the beginning of 2008, the
company forecasted a production of 60,000 units. For 2008, the factory overhead rate per unit would
be:

a. P2.75 b. P3.00 c. P3.25 d. P3.50

9. Cap processing applied factory overhead based on machine hours at the following rates per machine
hour: Mixing, P7.75; Washing, P15.10; and, Packing, P2.125. In 2011, actual machine hours are
19,000, 27,500, and 5,500 respectively, for Mixing, Washing, and Packing departments. If the actual
factory overhead incurred is P574,375, the amount of overhead-applied (under-applied) overhead is:

a. P(187.50) b. 11,875.00 c. P23,562.50 d. (76,125.00)

10. Dickey Company had total under applied overhead of P15,000. Additional data:

Variable Overhead:
Applied based on standard DLH allowed....................... P 42,000
Budgeted based on standard DLH.................................. 38,000
Fixed overhead:
Applied based on standard DLH allowed...................... 30,000
Budgeted based on standard DLH................................. 27,000

What is the actual total overhead?

a. P50,000 b. P57,000 c. P80,000 d. P87,000

11. Alden Company has a standard absorption and flexible budgeting system and uses a two-way
analysis of overhead variances. Selected data for the February production activity are:

Budgeted fixed factory overhead cost............................................. P 64,000

Actual factory overhead incurred.................................................... P230,000
Variable factory overhead rate per DLH......................................... P 5
Standard DLH................................................................................. 32,000
Actual DLH..................................................................................... 32,000

The budget (controllable) variance for February is

a. P1,000 favorable b. P1,000 unfavorable c. P6,000 favorable d. P6,000 unfavorable

12. Information on Ripley Company’s overhead costs for the January production activity is as follows:

Budgeted fixed overhead............................................................... P 75,000

Standard fixed overhead rate per DLH.......................................... P 3
Standard variable overhead rate per DLH..................................... P 6
Standard DLH allowed for actual production............................... 24,000
Actual total overhead incurred...................................................... P220,000

Ripley has a standard absorption and flexible budgeting system, and uses the two-variance method
(two-way analysis) for overhead variance. The variance (denominator) variance for January is

a. P3,000 unfavorable b. P3,000 favorable c. P4,000 unfavorable d. P4,000 favorable

13. Union Company uses a standard cost accounting system. The following factory overhead and
production data available for August:

Standard fixed overhead rate per DLH P1

Standard variable overhead rate per DLH 4
Budgeted monthly DLH 40,000
Actual DLH worked 39,500
Standard DLH allowed for actual production 39,000
Overall overhead variance – favorable P2,000
Applied overhead for August is
a. P195,000 b. P197,000 c. P197,500 d. P199,500

14. Nil Co. uses a predetermined factory overhead application rate based on direct labor cost. For the
year ended December 31, Nil’s budgeted factory overhead was P600,000, based on a budgeted
volume of 50,000 direct labor hours, at a standard direct labor rate of P6 per hour. Actual factory
overhead amounted to P620,000, with actual direct labor cost of P325,000. For the year. Over
applied factory overhead was

a. P20,000 b. P25,000 c. P30,000 d. P50,000

15. Universal Company uses a standard cost system and prepared the following budget at normal
capacity for the month of January:

Direct labor hours 24,000

Variable factory overhead P48,000
Fixed factory overhead P108,000
Total factory overhead per DLH P 6.50

Actual data for January were as follows:

Direct labor hours worked 22,000

Total factory overhead P147,000
Standard DLH allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the budget (controllable) variance for
January?

a. P3,000 favorable b. P13,500 unfavorable c. P9,000 favorable d. P10,500 unfavorable

 Joint and By-Products

1. Vreeland, Inc., which manufactures products X, Y, and Z from a joint process. Joint product costs were
P60,000. Additional is provided below.
If Processed Further
Units Sales Value at Sales Additional
Product Produced Split-Off Values Costs
X 6,000 P40,000 P55,000 P9,000
Y 4,000 P35,000 P45,000 P7,000
Z 2,000 P25,000 P30,000 P5,000

Assuming that joint product cost are allocated using the physical measures (units produced)
approach, what were the total cost allocated to product X?

a. P27,000 b. P29,000 c. P33,000 d. P39,000

2. Using the same information in No. 1, and assuming that joint product costs are allocated
using the relative sales value at split-off approach , what were the total cost allocated to product Y?

a. P27,000 b. P28,000 c. P28,350 d. P32,200

3. Brandy, Inc. makes two products, Wet and Dry, from a joint operating process. For the
month of May, 2011, the total joint costs of processing was P120,000 and the cost of further processing
after the point of split-off, as well as other relevant data, are shown below:

Wet Dry
Units after split-off.......................................... P 1,600 800
Sales price per unit.......................................... P 200 400
Further processing costs.................................. P100,000 P140,000

The company uses the net realizable value method for allocating the joint costs of processing. For
the month of May, 2011, the joint costs allocated to product Wet was:

a. P60,000 b. P66,000 c. P72,000 d. P80,000

4. Gone Company manufactures three products, R, S, and T, in a joint process. For every ten kilos of raw
materials input, the output is five kilos of R., three kilos of S, and two kilos of T.

During August, 50,000 kilos of raw materials costing P120,000 were processed and completed, with
joint conversion costs of P200,000. Conversion costs are to be allocated to the products on the basis
of market values, while materials were based on units produced.

To make the products salable, further processing which does not require additional raw materials
was done at the following costs:
Product R...................................................................... P30,000
Product S....................................................................... 20,000
Product T...................................................................... 30,000

The unit selling prices are:

Product R...................................................................... P10
Product S....................................................................... 12
Product T...................................................................... 15

The unit cost of Product R is:

a. P7.12 b. P8.00 c. P10.00 d. P25.32

5. Using the same information in No. 4, and assume all units are considered sold, compute the gross profit
on sales for Product S:

a. P80,000 b. P72,000 c. P60,000 d. P48,000

6. Using the same information in No. 4, and assume all units of Product T are sold, and selling and
administrative expenses are 20% of sales, the net income from the sale of Product T is:

a. P18,000 b. P22,000 c. P240,000 d. P64,000

7. Magna Co. produces three products, A, B, and C, A and C are joint products, while B is a by-product
of A. No joint
cost is allocated to the by-product. The production data for the year 2011 were as follows:

a. In Department I, 220,000 kilos of raw materials are processed at a total cost of P240,000. After
processing, 60% of the units are transferred to Department II while 40% of the units (now C)
are transferred to Department III.
b. In Department II, the materials are processed further at total additional cost of P76,000. On
completion of the process, 70% of the units (now A) are transferred to Department IV while
the other 30% emerge as B, the by-product, which is sold at P1.20 per kilo. The selling
expenses related to B amounted to P16,200.
c. In Department III, C is processed further at total additional cost of P330,000. In this
department, a normal loss units of C occurs during processing, which is equal to 10% of the
good output. The good output of C is sold at P12 per kilo.
d. In Department IV, A is processed further at total additional cost of P47,320 after which it is
ready for sale at P5 per kilo.

Market value method is used in allocation joint costs and treating the NRV of by product as an
addition to product A sales.

Determine how much of the total joint cost of P240,000 is allocated to product A.

a. P101,564 b P91,210 c. P95,267 d. P88,800

8. Using the same information in No. 7, determine how much of the total joint cost of P240,000 is
allocated to product C.

a. P138,436 b. P148,790 c. P144,733 d. P151,200

9. A chemical company manufactures joint products Pep and Vim, and a by-product, Zest. Cost are
assigned to the joint products by the market value method, which considers further processing costs in
subsequent operations. For allocating cost to the by-product, the market value, or reversal cost
method is used.

The total manufacturing costs for 10,000 units were P172,000 during the quarter. Production and
costs data follow:

Pep Vim Zest

Units produces......................................................... 5,000 4,000 1,000
Sales price per unit.................................................. P50 P40 P5
Further Process cost per unit................................... 10 5 --
Selling & Admin. expense per unit......................... 2
Operation profit per unit.......................................... 1

The value of Zest to be deducted from the joint cost is:

a. P5,000 b. P3,000 c. P2,000 d. Zero

10. Using the same information in No.9, compute the gross profit for Pep:

a. P70,000 b. P80,000 c. P100,000 d. Zero

 ACTIVITY- BASED COSTING

11. Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of
individual products, the controller estimates the amount of overhead that should be allocated to the
individual product lines from the information given as follows:

Wall Mirrors Specialty Windows

Units produced................................................... 25 25
Material moves per product line........................ 5 15
Direct labor hours per unit................................. 200 200
Budgeted materials handling costs.................... P50,000

Under a costing system that allocated overhead on the basis of direct labor hours (traditional), the
materials handling cost allocated to one unit of wall mirrors would be

a. P1,000 b. P500 c. P2,000 d. P5,000

12. Using the same information in No. 11, the materials handling costs allocated to one unit of wall
mirrors under Activity-Based Costing would be:

a. P1,000 b. P500 c. P1,500 d. P2,500

13. A company has identified the following overhead costs and cost drivers for the coming
year:
Job 101 Job 102 Job 103
Direct materials P 5,000 P 12,000 P 8,000
Direct labor P 2,000 P 2,000 P 4,000
Units completed 100 50 200
Number of 1 2 4
setups
Number of 20 10 30
Inspections
Number of 30 10 50
material
moves
Engineering 10 50 10
hours

The following information was collected on three jobs that were completed during the year:
Overhead Item Cost Driver Budgeted Budgeted
Cost Activity
Level
Machine setup Number of setup P 20,000 200
Inspection Number of P 130,000 6,500
inspection
Material Number of P 80,000 8,000
Handling material
moves
Engineering Engineering P 50,000 1,000
hours
P 280,000
Budgeted direct labor cost was P100,000 and budgeted direct material cost was P280,000.

If the company uses activity-based costing, how much overhead cost should be allocated to Job 101?

a. P1,300 b. P2,000 c. P5,000 d. P5,600

14. Using the same information in No. 13, compute the cost of each unit of Job 102 using
Activity-Based Costing:

a. P340 b. P392 c. P 440 d. P520

15. Using the same information in No. 13, assuming the company prices its products at 140% cost and
the company uses Activity-Based Costing, the price of each unit of Job 103 would be:

a. P98 b. P100 c. P116 d. P140

16. Ambrose Company uses three products with the following production and cost
information:

Model S Model M Model L

Units produced........................ 2,000 6,000 12,000
Direct labor hours (total)......... 4,000 2,000 4,000
Number of setups.................... 100 150 250
Number of shipments.............. 200 225 275
Engineering changes orders.... 15 10 5

Overhead costs include setups of P45,000; shipping costs of P70,000; and engineering costs of
P90,000. What be the per unit overhead cost for each model if direct labor hours
(traditional/conventional costing) were the allocation base?

Model S Model M Model S Model M

a. P10.25 P10.25 c. P20.50 P20.50
b. P41.00 P20.50 d. P41.00 P6.83

17. Using the same information in No. 16, what would be the per unit overhead cost for, Model S, if ABC
costing were used?

a. P10.25 b. P37.00 c. P41.00 d. P20.50

18. Using the same information in No. 16, what would be the per unit overhead cost for Model M, if
ABC costing were used?

a. P11.00 b. P33.00 c. P61.50 d. P41.00

BACKFLUSH COSTING SYSTEM (JIT)

19. The Pampanga Manufacturing Company uses a raw and in process (RIP) inventory account and
expenses all conversion costs to the cost of goods sold account. At the end of each month, all
inventories are counted, their conversion cost components are estimated, and inventory account
balances are adjusted accordingly. Raw material cost is backflushed from RIP to finished Goods. The
following is for the month of April:
Beginning balance of RIP account, including P1,400
of conversion cost...................................................... P31,000
Raw materials received on credit................................................ 367,000
Ending RIP inventory per physical count, including
P1,800 conversion cost estimate.................................... 33,000
Compute the amount to be backflushed from RIP to Finished goods:

a. P365,000 b P368,600 c. P367,000 d. 365,400

20. The Bulacan Manufacturing Company produces only for customer order and most work is shipped
within thirty-six hours of the receipt of an order. Bulacan uses a raw and in process (RIP) inventory
account and expenses all conversion cost to the cost of goods sold account. Work is shipped
immediately upon completion, so there is no finished goods account. At the end of each month,
inventory is counted, its conversion cost component is estimated, and the RIP account balance is
adjusted accordingly. Raw material cost is backflushed from RIP to Cost of Goods Sold. The
following information is for the month of May:

Beginning balance of RIP account, including P1,300

of conversion cost....................................................... P12,300
Raw materials received on credit............................................. 246,000
Ending RIP inventory per physical count, including
P2,100 conversion cost estimate................................. 12,100

Compute the amount to be backflushed from RIP to Cost of Goods Sold:

a. P.246,000 b. P 246,200 c. P247,000 d. P245,000

21. Using the same information in No. 20, compute the amount of Cost of Goods Sold after all
transactions and adjustments were made.

a. P246,000 b. P246,200 c. P 247,000 d. P245,000

22. G. Bello, general manager of a highly automated coffee production plant in Laguna, Ilocos Sur, has
provided the following information for transactions that occurred during October. The production
plant uses a JIT costing system.

a. Raw materials costing P300,000 were purchased.

b. All materials costing P300,000 were requisitioned for production.
c. Direct labor costs of P200,000 were incurred.
d. Actual factory overhead costs amounted to P995,000.
e. Applied conversion costs totaled P1,300,000. This includes the direct labor cost.
f. All units are completed and immediately sold.

Determined the October 31 balance in the Cost of Goods Sold account. No adjustment has been made
for over applied or under applied conversion cost.

a. P1,300,000 b. P1,495,000 c. P1,600,000 d. P1,195,000

23. Using the same information in No. 22, what was the over applied or under applied
conversion cost for the month?

a. P305,000 over applied c. P105,000 over applied

b. P195,000 under applied d. P105,000 under applied

24. Using the same information in Nos. 22 and 23, what is the Cost of Goods Sold after all transactions-
adjustments have been completed?

a. P1,304,000 b. P1,495,000 c. P1,600,000 d. P1,195,000

25.
Backflush Costing With a Finished Goods Account. The LanFat Manufacturing Company uses a Raw and In
Process (RIP) inventory account and expenses all conversion costs to the cost of goods sold account. At
the end of each month, all inventories are counted, their conversion cost components are estimated, and
inventory account balances are adjusted accordingly. Raw material cost is backflushed from RIP to
Finished Goods. The following information is for the month of August:

Beginning balance for RIP account, including $4,800 of conversion cost...................................... $ 43,500
Raw materials received on credit..................................................................................................... 680,000
 Ending RIP inventory per physical count, including $5,300 conversion
cost estimate....................................................................................................................... 47,200

Required: Prepare all journal entries involving the RIP account.

26.
Backflush Costing With No Finished Goods Account. The ATM Manufacturing Company produces only for
customer order, and most work is shipped within twenty-four hours of the receipt of an order. ATM uses a
Raw and In Process (RIP) inventory account and expenses all conversion costs to the cost of goods sold
account. At the end of each month, inventory is counted, its conversion cost component is estimated, and
the RIP account balance is adjusted accordingly. Raw material cost is backflushed from RIP to Cost of
Goods Sold. The following information is for the month of June:

Beginning balance of RIP account, including $900 of conversion cost.......................................... $ 8,500

Raw materials received on credit..................................................................................................... 187,000
Ending RIP inventory per physical count, including $1,100 conversion
cost estimate....................................................................................................................... 7,900

Required: Prepare all journal entries involving the RIP account.

27.
Backflush Costing; Entries in RIP and Finished Goods. The Clifton Manufacturing Company has a cycle
time of 1.5 days, uses a Raw and In Process (RIP) account, and charges all conversion costs to Cost of
Goods Sold. At the end of each month, all inventories are counted, their conversion cost components are
estimated, and inventory account balances are adjusted. Raw material cost is backflushed from RIP to
Finished Goods. The following information is for May:

Beginning balance of RIP account, including $600 of conversion cost.......................................... $ 5,500

Beginning balance of finished goods account, including $2,000 of
conversion cost.................................................................................................................. 6,000
Raw materials received on credit..................................................................................................... 173,000
Ending RIP inventory per physical count, including $850 conversion
cost estimate....................................................................................................................... 6,200
Ending finished goods inventory per physical count, including $1,550
conversion cost estimate.................................................................................................... 4,900

Required: Prepare all the journal entries that involve the RIP account and/or the finished goods account.

-End of Review Quizzer-