COST ACCOUNTING AND COST MANAGEMENT

Easy1. Refers to the income or benefit sacrificed or foregone when an alternative is selected

over another [A] avoidable cost [B] postponable cost [C] out-of-pocket cost [D]opportunity cost.

2. The following are the functions of controllership, except: [A] reporting andinterpreting decisions made by management [B] planning and control [C]taxadministration and compliance with all the requirements of governmental regulatorybodies [D] protection of assets.

3. The collection, presentation and analysis of cost data should serve the followingessential uses or aims, except: [A] planning profit by means of budgets [B] controllingcosts via responsibility accounting [C] assisting in establishing selling prices and apricing policy [D] furnishing relevant cost data for evaluation of decisions madeby management.

4. The following are examples of variable cost, which one is the exception: [A] salescommission [B] depreciation [C] royalties [D] overtime premiums.

5. The following are examples of factory overhead, which is not included: [A] overtimepremiums [B] cost of spoilage and rework not chargeable to a particular job [C] powerused in machine operation [D] all of the choices are considered factory overhead.

Moderate 6. Statement I: Capital expenditures relate to the use of resources for future benefits – the

benefits extending two or more accounting periods; Statement II: Revenue expendituresare costs that will benefit only the current period. [A] both statements are false [B] bothstatements are true [C] statement I is true, statement II is false [D] statement I isfalse, statement II is true.

7. The following are the characteristics of variable cost, which one is not included: [A] coststend to vary or change in total amount in an indirect proportion to volume ofactivity [B] comparatively constant cost per unit in the face of changing volume [C]easy and reasonable accurate assignments to operating departments [D] control of theirincurrence and consumption by the responsible department head.

8. Statement I: Financial Accounting data may be both historical and estimates. However,more emphasis is given to future estimates; Statement II: Financial Accounting reportsare in the form of one set of all-purpose financial statements that will serve the needs ofboth external and internal users. [A] both statements are false [B] both statements aretrue [C] statement I is true, statement II is false [D] statement I is false, statement IIis true.

Difficult9. Statement I: Financial Accounting reports are prepared and required not only by

shareholders, prospective investors, and creditors but also by the different regulatorybodies; Statement II: Management Accounting is optional for its existence and functionsince it depends upon management and its needs. [A] both statements are false [B]both statements are true [C] statement I is true, statement II is false [D] statement Iis false, statement II is true.

10. Cost accounting is area of accounting concerned with cost determination, cost controland cost analysis. Which of the following statements is a description pertaining to costanalysis? [A] refers to the accumulation of cost data by products, processes or servicesto be able to arrive at a unit cost or cost per work unit [B] refers to the comparison ofstandards set for costs per unit and per work unit with the figures per actual operationsso that remedial measures may be adopted [C] refers to the use of cost data bymanagement in decision-making [D] none of the choices.

Easy1. The following data have been taken from the accounting records of Davis Corporation for

the just completed year:Administrative expenses P 600,000Direct labor 800,000Finished goods inventory, beginning 480,000Finished goods inventory, ending 640,000Manufacturing overhead 920,000Purchases of raw materials 480,000Raw materials inventory, beginning 160,000Raw materials inventory, ending 280,000Sales 3,960,000Selling expenses 560,000Work in process inventory, beginning 280,000Work in process inventory, ending 200,000

Determine the amount to be reported for prime Cost: [A] 1,160,000 [B] 1,100,000 [C]1,150,000 [D] 1,110,000

Solution:

2. The following data have been taken from the accounting records of Davis Corporation forthe just completed year:

Administrative expenses P 600,000Direct labor 800,000Finished goods inventory, beginning 480,000Finished goods inventory, ending 640,000Manufacturing overhead 920,000Purchases of raw materials 480,000Raw materials inventory, beginning 160,000Raw materials inventory, ending 280,000Sales 3,960,000Selling expenses 560,000Work in process inventory, beginning 280,000Work in process inventory, ending 200,000

Determine the amount to be reported for Conversion Cost: [A] 1,720,000 [B] 1,750,000[C] 1,550,000 [D] 1,620,000.

Solution:

Moderate

3. The following items were among those that were reported on Lee Company’s incomestatement for the year ended December 31, 2009: Legal and audit fees, 1,700,000; Rentfor office space, 2,400,000; Interest on inventory loan, 2,100,000; Loss on abandoneddata, processing equipment used in operations, 1,350,000. The office space is usedgenerally by Lee’s sales department. What amount of the above-listed items should beclassified as general and administrative expenses in the income statement? [A]1,500,000 [B] 1,700,000 [C] 1,800,000 [D] 1,900,000.

Solution:

4. Brock Corp. reports operating expenses in two categories: selling and administrative.The adjusted trial balance at December 31, 2009 included the following expense and lossaccounts: Accounting and legal fees, 1,200,000; Advertising expenses, 1,500,000;Freight-out, 800,000; Interest expense, 700,000; Loss on sale of investment, 300,000;Officers’ salaries, 2,250,000; Rent for office space, 2,200,000; Salessalaries/commissions, 1,400,000. One half- of the rented premises are occupied by thesales department. Brock’s total selling expenses for 2009 should be? [A] 3,700,000 [B]4,800,000 [C] 3,000,000 [D] 4,000,000.

Solution:

Difficult5. For each unit of product manufactures, a company incurs direct materials cost of P30,

direct labor of P35 and variable overhead of P10. The company’s monthly fixedoverhead is P150,000. Compute for the total production cost if the company produces20,000 units. [A] 1,700,000 [B] 1,650,000 [C] 1,800,000 [D] 1,950,000.

Solution:

JOB ORDER COST SYSTEM

Easy11. The appropriate method for the disposition of underapplied or overapplied factory

overhead [A] is to cost of goods sold only [B] is to finished goods inventory only [C] isapportioned to cost of goods sold and finished goods inventory [D] depends on thesignificance of the amount.

12. The following procedures are considered relevant in using job order costing method,which one is not included: [A] costing each product [B] service allocation [C] overheadallocation [D] none of the choices.

13. The most widely used methods of service allocation are (in increasing order ofsophistication) would be: [A] direct method, step-down method, and reciprocal

method [B] step-down method, direct method, and reciprocal method [C] reciprocalmethod, direct method, and step-down method [D] step-down method, reciprocalmethod, and direct method.

14. Scrap materials may be accounted for in any of the following, except: [A] additionalrevenue [B] reduction to cost of goods sold [C] reduction of factory overhead control [D]charge to employee.

15. It is the process of correcting defective units in order to bring them into a salablecondition [A] machining [B] rework [C] casting [D] manufacturing.

Moderate 16. This method of service cost allocation allows reflection of all reciprocal services among

service departments. It is also known as the simultaneous solution method, crossallocation method, matrix allocation method, or double distribution method [A]reciprocal method [B] direct method [C] step-down method [D] service bay method.

17. This method of service allocation involves allocation of service department costs directlyto both service and producing departments [A] reciprocal method [B] direct method [C]step-down method [D] service bay method.

18. This method of service allocation allocates service department costs directly to theproducing departments. No consideration is given to services performed by one servicedepartment for another service department [A] reciprocal method [B] direct method[C] step-down method [D] service bay method.

Difficult19. Statement I: Waste refer to filings or excessive trimmings of materials, defective

materials that cannot be returned to vendor or not suitable for manufacturingoperations, or broken parts as a result of an employee error or machine breakdowns thatcauses the product in a poor quality condition; Statement II: Scarp materials is theamount of raw materials left over from a production process or production cycle forwhich there are no further use [A] both statements are false [B] both statements aretrue [C] statement I is true, statement II is false [D] statement I is false, statement II istrue.

20. Statement I: Job order costing method is the accumulation of costs by specific jobs;Statement II: Job order costing method is used when the products manufactured withinthe department or cost center are heterogeneous or dissimilar type of products. [A] bothstatements are false [B] both statements are true [C] statement I is true, statement IIis false [D] statement I is false, statement II is true.

Easy1. Paula Company ha inventories at the beginning and end of 2010 as follows:

January 1, 2010 December 31,2010

Raw materials P 55,000 P 65,000Work-in-process 96,000 80,000Finished goods 50,000 85,000

During 2010, the following costs were incurred: raw materials purchased, P400,000;direct-labor payroll, P220,000; and factory overhead, P330,000. Determine Paula’s costof goods sold for 2010.

Solution:

2. Healthy Company had the following inventories at the beginning and end of March 2010:

March 1, 2010 March 31, 2010Direct materials P 36,000 P 30,000Work-in-process 18,000 12,000Finished goods 54,000 72,000

The following additional manufacturing cost data were available for the month of March2010: Direct materials purchased, P84,000; Direct-labor payroll, P60,000; Direct-laborrate per hour, P7.50; and Factory overhead rate per direct-labor hour, P10. Compute forHealthy Company’s cost of goods manufactured for March 2010.

Solution:

Moderate3. Leslie Company uses job order costing. Factory overhead is applied to production at a

predetermined rate of 150% of direct labor cost. Any over or underapplied factoryoverhead is closed to the cost of goods sold account at the end of each month.Additional information is available as follows:

Job 102, 103 and 104 were started during February. Direct materials requisitions forFebruary totaled P26,000. Direct labor cost of P20,000 was incurred for February.Actual factory overhead was P 32,000 for February. The only job still in process on

February 28 was Job 104, with costs of P2,800 for direct materials and P1,800 for directlabor. The cost of goods manufactured for February was?

Solution:

4. Leslie Company uses job order costing. Factory overhead is applied to production at apredetermined rate of 150% of direct labor cost. Any over or underapplied factoryoverhead is closed to the cost of goods sold account at the end of each month.Additional information is available as follows:

Job 102, 103 and 104 were started during February. Direct materials requisitions forFebruary totaled P26,000. Direct labor cost of P20,000 was incurred for February.Actual factory overhead was P 32,000 for February. The only job still in process onFebruary 28 was Job 104, with costs of P2,800 for direct materials and P1,800 for directlabor. Over or underapplied factory overhead should be closed to the cost of goods soldaccount at February 28 in the amount of?

Solution:

Difficult5. Under Hermione Company’s job order cost system; estimated costs of defective

work(considered normal in the manufacturing process) are included in the predeterminedfactory overhead rate. During March, Job No. 210 for 2,000 handsaws was completed atthe following costs per unit:

Direct materials P5

Direct labor 4 Factory overhead (applied at 150% of DirectLabor cost)

6

P15

Final inspection disclosed 100 defective saws, which were reworked at a cost of P2 perunit for direct labor, plus overhead at the predetermined rate. The defective units fallwithin the normal range. What is the total rework cost and to what account should it becharged?

Solution:

ACCOUNTING FOR MATERIALS AND LABOR

Easy1. The purchase requisition may originate from anyone of the following, except: [A]

materials ledger clerk [B] department head [C] head of the accounting department[D] supervisor.

2. This document, usually signed by the purchasing agent, serves as a written authorizationfor the vendor/supplier to deliver the specified quantity and type of materials describedtherein at the designated time and place [A] purchase requisition [B] delivery receipt [C]purchase order [D] receiving report.

3. This method assumes that materials are issued from the oldest stock or lot and that thecosts of those units when bought are the same costs that are charged to productionwhen issued [A] FIFO method [B] LIFO method [C] Average method [D] specificidentification method.

4. Labor cost control refers to keeping track of labor costs in total and per unit, comparingthem with predetermined figures and adopting remedial measures in case there arevariances. Labor cost control requires all of the following, except: [A] use of laborstandards and budgets [B] labor performance reports and disciplinary actions [C]appropriate compensation including wage incentive systems [D] production planning.

5. The following are considered regular Philippine holidays, which one is a special holiday:[A] Eidul Fitr [B] All Saints Day [C] Bonifacio Day [D] Rizal Day.

Moderate6. Statement I: Returns to suppliers and returns to storeroom are entered as negative in the

stock cards under “issued” and “received” sections, respectively; Statement II: Scrap istreated as a reduction in factory overhead if it is not traceable to a particular job. [A]both statements are false [B] both statements are true [C] statement I is true, statementII is false [D] statement I is false, statement II is true.

7. Statement I: Monthly-paid employees refer to those who are paid on the days theyactually worked and on unworked regular holidays; Statement II: Daily-paid employeesrefer to those who are paid every day of the month, including unworked rest days,special days and regular holidays. [A] both statements are false [B] both statementsare true [C] statement I is true, statement II is false [D] statement I is false, statement IIis true.

8. This involves the determination of the total number of hours worked by an employee andhow this total is accounted for [A] payroll procedures [B] timekeeping procedures [C]charging labor cost to production [D] payslip distribution.

Difficult9. The PAG-IBIG Fund or the Home Development Mutual Fund is a savings by the

employees’ monthly contributions and by the employers’ counterpart. A major feature ofthe program is housing loan assistance to employee members. Which of the following isthe correct meaning of the acronym PAG-IBIG? [A] Pagdadamayan sa Kinabukasan –Ikaw, Bahay, Industriya, Gobyerno [B] Pagtutulungan sa Kinabukasan – Ikaw,Bangko, Industriya, Gobyerno [C] Pagsisikap para sa Kinabukasan – Industriya,Bangko, Ikaw, Gobyerno [D] Paghahanda sa Kinabukasan – Industriya, Bangko, Ikaw,Gobyerno

10. Statement I: Every employee covered by the Holiday Pay Rule is entitled to his dailybasic wage for any unworked regular holiday. This means that the employee is entitledto at least 100% of his basic wage even if he did not report for work, provided he is

present or is on leave of absence with pay on the work day immediately preceding theholiday; Statement II: All covered employees shall be entitled to holiday pay when theyare on leave of absence with pay. Employees who are on leave of absence without payon the day immediately preceding a regular holiday may not be paid the required holidaypay if they have not worked on such regular holiday. [A] both statements are false [B]both statements are true [C] statement I is true, statement II is false [D] statement Iis false, statement II is true.

Easy1. The following data were taken from the records of Sharon Company:

March 1,2010

March 31,2010

Inventories: Direct materials ? P 100,000 Work-in-process 160,000 190,000 Finished goods 120,000 156,000

Materials purchases, P92,000; Factory overhead, 75% of direct labor cost, P126,000;Operating expenses, 12.50% of sales, P50,000; Net income for the month, P50,000.Compute for the direct materials inventory on March 1, 2010.

Solution:

2. Grace Company manufactures picture frames of all sizes and shapes and uses job-ordercosting system. There is always some spoilage in each production run. The followingcosts relate to the current run:

Estimated overhead (exclusive of spoilage) P 160,000Spoilage (estimated) 25,000Sales value of spoiled frames 11,500Labor hours 100,000

The actual cost of a spoiled picture frame is P7.00. During the year, 170 frames areconsidered spoiled. Each spoiled frame can be sold for P4. The spoilage is considered apart of all jobs (factory overhead). What amount should be debited to Factory OverheadControl to record spoilage pertaining to unrecovered cost?

Solution:

Moderate3. Carter Marketing Corporation uses job order costing system. It has three production

departments: X, Y, and Z. The manufacturing budget cost for 2008 is as follows:

Department X

Department Y

Department Z

Direct materials P 600,000 P 400,000 P 200,000Direct labor 200,000 500,000 400,000Manufacturingoverhead

600,000 100,000 200,000

For Job 01 completed in 2010, direct materials cost was P75,000; direct labor,Department X, P40,000, Department Y, P100,000, and Department Z, P20,000. Thecorporation applies manufacturing overhead to each job on the basis of direct labor costusing departmental rates predetermined at the beginning of the year based on themanufacturing overhead budget cost. The total manufacturing cost of Job 01 is?

Solution:

4. Rizza Lyn Company uses job order costing. At the beginning of June 2010, two jobs werein process:

Job369

Job372

Materials P4,000

P1,400

Direct Labor 2,000 600Applied FactoryOverhead

3,000 900

Total P P

9,000 2,900

There was no inventory of finished goods on June 1. During the month, Jobs 373, 374,376, 378, and 379 were started. Materials requisitioned for June totaled P26,000, directlabor cost, P20,000, and actual factory overhead of P32,000. Factory overhead is appliedat the rate of 150% of direct labor cost. The only job still in process at the end of June isJob 379, with costs of P2,800 for materials and P1,800 for direct labor. Job 376, the onlyfinished job on hand at the end of June, has a total cost of P4,000. The cost of goods soldat normal amounted to?

Solution:

Difficult5. The Fork Corporation manufactures one product and accounts for cost by a job order cost

system. You have obtained the following information for the year ended December 31,2011 from the corporation’s books and records:

Total manufacturing cost added during 2011 based on actual direct materials, actualdirect labor and applied factory overhead on actual direct labor cost, P1,000,000. Cost of goods manufactured based on actual direct materials and direct labor andapplied factory overhead, P970,000.

Applied factory overhead to work in process based on direct labor cost, 75%. Appliedfactory overhead for the year, based on total manufacturing cost, 27%.

Beginning work-in-process inventory was 80% of ending work-in-process inventory.Compute the cost of direct materials used for the year ended December 31, 2011.

Solution:

ACCOUNTING FOR FACTORY OVERHEAD

Easy

1. The following are some of the factors to be considered in deciding the kind ofdepartment required for establishing accurate departmental overhead rates with whichto control costs, except: [A] location of operations, processes and machinery [B]relationship of operations to flow of product [C] number of machineries operated [D]responsibilities for production and costs.

2. The following books and records are some of the major sources of factory overheadcharges, except: [A] voucher register [B] stores requisition journal [C] payroll book [D]official receipts.

3. After allocating the factory overhead of service departments (producing and service)using the factory survey data and other bases (if any), the service department chargesare redistributed to the producing departments using any of the following methods,except: [A] step method [B] FIFO method [C] linear algebra [D] direct method.

4. It is the volume of production that would be attained if the plant equipment andpersonnel were in continuous operation at peak efficiency at all times [A] expectedcapacity [B] normal capacity [C] practical capacity [D] maximum capacity.

5. It is the volume that does not expect full utilization and does make allowance forunavoidable idleness of men and machinery, including delays caused by maintenanceand repair, machine set-up, fatigue and time lost through vacations and holidays [A]expected capacity [B] normal capacity [C] practical capacity [D] maximum capacity.

Moderate6. It is average annual volume of production needed to meet ordinary and usual sales

demands over a cycle of years (usually 5 years) long enough to even out cyclicalfluctuations in sales volume. [A] expected capacity [B] normal capacity [C] practicalcapacity [D] maximum capacity.

7. The overhead rate basis selected by a company will depend on many considerations.Factors that affect the choice include type of goods produced, amount of machineryemployed, organization of the firm, type of labor used, and wage rates applied. Certainguiding principles should be observed in selecting a basis, except: [A] the rate must beeasily computed [B] the factor chosen as the basis must be one that can easily bemeasured for each job [C] there must be some direct relationship between the amount ofoverhead costs incurred and the factor chosen as a basis [D] none of the above.

8. At the end of the year, under or overapplied factory overhead costs may be closed usingone of the following methods: closed to cost of sales account, closed to cost of sales,finished goods, and work-in-process or closed to income summary. If the amountinvolved is normal and not significant, it is recommended that the variance be closed to:[A] cost of sales account [B] closed to cost of sales, finished goods, and work-in-process [C] closed to income summary [D] some other accounts.

Difficult9. Statement I: An overhead rate may be incorrect because of misjudgments regarding

estimated overhead or anticipated activity; Statement II: The best way to detect anincorrect overhead rate is to analyze the factors used in its predetermination [A] bothstatements are false [B] both statements are true [C] statement I is true, statement IIis false [D] statement I is false, statement II is true.

10. Statement I: When interim financial statements are prepared and factory overhead isclosed monthly or quarterly, the under or overapplied overhead costs resulting fromnormal causes are carried forward on the statement of financial position as deferredcharges for underapplied costs, or deferred credits for overapplied costs; Statement II:The factory overhead control account collects actual expenses as debits and appliedexpenses as credits. [A] both statements are false [B] both statements are true [C]statement I is true, statement II is false [D] statement I is false, statement II is true.

Easy

1. Schneider, Inc. had the following information relating to 2011:

Budgeted factory overhead P 74,800Actual factory overhead P 78,300Applied factory overhead P 76,500Estimated labor hours 44,000

If Schneider decides to use the actual results from 2011 to determine the 2012 overheadrate, what will be the 2012 overhead rate?

Solution:

2. During the current accounting period, a manufacturing company purchased P70,000 ofraw materials, of which P50,000 of direct materials and P5,000 of indirect materials wereused in production. The company also incurred P45,000 of total labor costs and P20,000of other factory overhead costs. An analysis of the work-in-process control accountrevealed P40,000 of direct labor costs. Based upon the above information, what is thetotal amount accumulated in the factory overhead control account?

Solution:

Moderate3. Cannon Cannery, Inc. estimated its factory overhead at P510,000 for the year, based on

normal capacity of 100,000 direct labor hours. Standard direct labor hours for the yeartotaled 105,000, while the factory overhead control account at the end of the yearshowed a balance of P540,000. How much was the under or overapplied factoryoverhead for the year?

Solution:

4. The following cost data were taken from the records of a manufacturing company:

Depreciation on factory equipment P1,000,00

0Depreciation on sales office 500,000Advertising 7,000,00

0Freight-out 3,000,00

0Wages of production workers 28,000,0

00Raw materials used 47,000,0

00Sales salaries and commissions 10,000,0

00Factory rent 2,000,00

0Factory insurance 500,000Materials handling 1,500,00

0Administrative salaries 2,000,00

0

Based upon the above information, the manufacturing costs incurred during the yearwere?

Solution:

Difficult5. Tasty Treat Company prepares, packages, and distributes six frozen vegetables in two

different sized containers. The different vegetables and different sizes are prepared inlarge batches. The company employs a normal cost job order costing system.Manufacturing overhead is assigned to batches by a predetermined rate on the basis ofdirect labor hours. The manufacturing overhead costs incurred by the company duringtwo recent years (adjusted for changes using current prices and wage rates) arepresented below:

2011 2012Direct labor hours worked 2,760,000 2,160,000Manufacturing overhead costs incurred: Indirect labor P

11,040,000

P8,640,000

Employee benefits 4,140,000 3,240,000 Supplies 2,760,000 2,160,000 Power 2,208,000 1,728,000 Head and light 552,000 552,000 Supervision 2,865,000 2,625,000 Depreciation 7,930,000 7,930,000 Property taxes and insurance 3,005,000 3,005,000Total overhead costs P

34,500,000

P29,880,00

0

What will be the total overhead rate for a 2,300,000 direct labor hour level of activity in 2012?

Solution:

PROCESS COST SYSTEM

1. Is defined as lost units, which is unusual, or unexpected or even though expected but itexceeds the normal limits [A] abnormal lost units [B] normal lost units [C] normalshrinkage [D] abnormal shrinkage.

2. When should process costing techniques be used in assigning costs to products? [A] ifthe product is manufactured on the basis of each order received [B] when production isonly partially completed during the accounting period [C] if the product is composedof mass-produced homogeneous units [D] whenever standard costing techniquesshould not be used.

3. Which of the following is a characteristic of a process costing system? [A] work-in-process inventory is restated in terms of completed units [B] costs areaccumulated by order [C] it is used by a company manufacturing custom machinery [D]standard costs are not applicable.

4. From the industries listed below, which one is most likely to use process costing inaccounting for production costs? [A] road builder [B] electrical contractor [C] newspaperpublisher [D] automobile repair shop.

5. An equivalent unit of material or conversion cost is equal to [A] the amount ofmaterial or conversion cost necessary to complete one unit of production [B] aunit work-in-process inventory [C] the amount of material or conversion cost necessaryto start a unit of production in work-in-process [D] fifty percent of the material orconversion cost of a unit of finished goods inventory (assuming a linear productionpattern).

Moderate6. The following are the differences between process costing and job order costing, which

one is not: [A] total cost is calculated at the end of costing period for process costingwhile upon completion for job order costing [B] costs are accumulated per departmentfor process costing in contrast to job order costing, which is by orders [C] production isreported by departments for process costing and by orders for job order costing [D]none of the choices.

7. The percentage of completion of the beginning work-in-process inventory should beconsidered in the computation of the equivalent units of production for which of thefollowing methods of process costing? [A] FIFO – Yes; Weighted Average – No [B]FIFO – Yes; Weighted Average – Yes [C] FIFO – No; Weighted Average – Yes [D] FIFO – No;Weighted Average – No.

8. The units transferred in from the first department to the second department should beincluded in the computation of the equivalent units for the second department underwhich of the following methods of process costing? [A] FIFO – Yes; Weighted Average –No [B] FIFO – Yes; Weighted Average – Yes [C] FIFO – No; Weighted Average – Yes [D]FIFO – No; Weighted Average – No.

Difficult9. In a given process costing system, the equivalent units of production are computed using

the weighted-average method. With respect to conversion costs, the percentage ofcompletion for the current period only is included in the calculation of the [A] BeginningWork-In-Process Inventory – No; Ending Work-In-Process Inventory – No [B] BeginningWork-In-Process Inventory – No; Ending Work-In-Process Inventory – Yes [C]Beginning Work-In-Process Inventory – Yes; Ending Work-In-Process Inventory – No [D]Beginning Work-In-Process Inventory – Yes; Ending Work-In-Process Inventory – Yes .

10. In a process costing system, how is the unit cost affected in a production cost reportwhen materials are added in a department subsequent to the first department and theadded materials result in additional units? [A] the first departments unit cost isincreased, which necessitates an adjustment of the transferred-in unit cost [B] the firstdepartment’s unit cost is decreased, which necessitates an adjustment of thetransferred-in unit cost [C] the first department’s unit cost is increased, but it doesnot necessitate an adjustment of the transferred-in unit cost [D] the first department’sunit cost is decreased, but it does not necessitate an adjustment of the transferred-inunit cost.

Easy1. Kew Company had 3,000 units of work-in-process at April 1 which was 60% complete as

to conversion cost. During April, 10,000 units were completed. At April 30, 4,000 unitsremained in work-in-process which was 40% complete as to conversion cost. Directmaterials are added at the beginning of the process. How many units were startedduring April?

Solution:

2. Pure Spring Water Company bottles spring water. The spring water first undergoes filtration ion Department 1 and is eventually bottled in Department 2. A quantity schedule for May 2011 follows:

Department 1: Department 2:Unit started in process 110,0 Units received from 80,0

00 Department 1 00Units transferred to Department 2

80,000

Units transferred to finished stock

61,400

Units in process, end 30,000

Units in process, end 18,600

Units in process at the end in both departments are 72%. In Department 2, what is the equivalent production for conversion cost?

Solution:

Moderate3. Department II of Charity Manufacturing Company presents the following production data

for the month of May, 2011:Opening inventory, 3/8 completed 4,000

unitsStarted in process 13,000

unitsTransferred 9,000

unitsClosing inventory, ½ completed 4,000

unitsClosing inventory, ¾ completed 4,000

units

What are the equivalent units of production for the month of May, 2011 using FIFOMethod?

Solution:

4. Department II of Charity Manufacturing Company presents the following production datafor the month of May, 2011:

Opening inventory, 3/8 completed 4,000units

Started in process 13,000units

Transferred 9,000units

Closing inventory, ½ completed 4,000units

Closing inventory, ¾ completed 4,000units

What are the equivalent units of production for the month of May, 2011 using AverageMethod?

Solution:

Difficult5. The Bahamas factory of New England Chemical produces environmental chemicals in

processes in which normal loss takes place and while abnormal loss were discovered atthe end. Management considers normal spoilage to be 0.5 percent or less of gallons ofmaterial placed into production. The following operating statistics are available forSeptember 2011 for the chemical XZP:

Beginning inventory (20% complete as to material; 30% complete as to conversion)

8,000gallons

Started during September 180,000gallons

Ending inventory (60% complete as to material; 70% complete as to conversion)

4,000gallons

Spoiled 1,400gallons

Compute for the equivalent units of production for conversion cost using FIFO Method.

Solution:

JOINT AND BY-PRODUCT COSTING

Easy1. The following are approaches to allocating joint costs incurred up to the split-off point

can be made by any of the following, except: [A] the market or sales value method [B]the quantitative or physical unit method [C] the FIFO method [D] the weighted averagemethod.

2. Revenue from sales of the by-product can be listed in the income statement as [A]additional cost to the product [B] a deduction from the total manufacturing cost of theby-product [C] a deduction from the cost of goods sold of the by-product [D] additionalsales revenue.

3. Refers to two or more products manufactured simultaneously by a common series ofprocessing operations with each product possessing more than a nominal value in theform in which they are produced is called [A] co-products [B] main products [C] jointproducts [D] by-products.

4. Refers to the production of two or more products at the same time but not necessarilyfrom the same processing operations or the same raw materials is called [A] co-products [B] main products [C] joint products [D] by-products.

5. Joint costs are used for [A] setting the selling price of a product [B] determining whetherto continue producing an item [C] controlling costs [D] determining inventory cost foraccounting purposes.

Moderate 6. Which of the following components of production are allocable as joint costs when a

single manufacturing process produces several salable products? [A] materials, laborand overhead [B] materials and labor only [C] labor and overhead only [D] overheadand materials only.

7. At the split-off point, products may be immediately salable or may require furtherprocessing. Which of the following products have both of these characteristics? [A] By-Products – No; Joint Products – No [B] By-Products – No; Joint Products – Yes [C] By-Products – Yes; Joint Products – No [D] By-Products – Yes; Joint Products – Yes.

8. Which of the following is often subject to further processing in order to be salable [A] By-Products – No; Scrap – No [B] By-Products – No; Scrap – Yes [C] By-Products – Yes; Scrap –Yes [D] By-Products – Yes; Scrap – No.

Difficult

9. For purposes of allocating joint costs to joint products, the relative sales value at split-offmethod could be used in which of the following situations? [A] No Costs Beyond Split-Off – Yes; Cost Beyond Split-Off – Yes [B] No Costs Beyond Split-Off – Yes; CostBeyond Split-Off – No [C] No Costs Beyond Split-Off – No; Cost Beyond Split-Off – Yes [D]No Costs Beyond Split-Off – No; Cost Beyond Split-Off – No.

10. The characteristic which is most often used to distinguish a product as either a jointproduct or a by-product is the [A] amount of labor used in processing the product [B]amount of separable product costs that are incurred in processing [C] amount (i.e.weight, inches, etc.) of the product produced in the manufacturing process [D] relativesales value of the products produced in the process.

Easy1. Land Company produces joint products Jana and Reta, together with by-product Bynd.

Jana is sold at split-off, but Reta and Bynd undergo additional processing. Productiondata pertaining to these products for the year ended December 31, 2010 are as follows:

Jana Reta Bynd TotalJoint costs: Variable P

88,000 Fixed 148,00

0Separable costs: Variable P

120,000

P3,000

123,000

Fixed 90,000 2,000 92,000Production inpounds

P50,000

40,000 10,000

100,000

Sales price perpound

P 4.00 P 7.50 P 1.10

There are no beginnings or ending inventories. No materials are spoiled in production.Variable costs change in direct proportion to production volume. Joint costs are allocatedto joint products to achieve the same profit percentage for each joint product. Netrevenue from by-product Bynd is deducted from joint production costs of the mainproduct. Compute for the total gross profit for the joint products.

Solution:

2. Land Company produces joint products Jana and Reta, together with by-product Bynd.Jana is sold at split-off, but Reta and Bynd undergo additional processing. Productiondata pertaining to these products for the year ended December 31, 2010 are as follows:

Jana Reta Bynd TotalJoint costs: Variable P

88,000 Fixed 148,00

0Separable costs: Variable P

120,000

P3,000

123,000

Fixed 90,000 2,000 92,000Production inpounds

P50,000

40,000 10,000

100,000

Sales price perpound

P 4.00 P 7.50 P 1.10

There are no beginnings or ending inventories. No materials are spoiled in production.Variable costs change in direct proportion to production volume. Joint costs are allocatedto joint products to achieve the same profit percentage for each joint product. Netrevenue from by-product Bynd is deducted from joint production costs of the mainproduct. Compute for the joint costs allocated to Reta.

Solution:

Moderate3. Acer Company buys Article X for P0.80 per unit. At the end of processing in Department

1, Article X split-off into Product A, B, and C. A is sold at the split-off point with no furtherprocessing; B and C require further processing before they can be sold; B is processed inDepartment 2; and C is processed in Department 3. The following is a summary of costsand other related data for the year ended December 31, 2008:

Departmen Departmen Departmen

t 1 t 2 t 3Cost of Article X P 96,000 - -Direct Labor 14,000 45,000 65,000Factory Overhead 10,000 21,000 49,000

Product A Product B Product CUnits sold 20,000 30,000 45,000Units on hand, December31, 2008

10,000 - 15,000

Sales P 30,000 P 96,000 P 141,750

There were no inventories on hand at January 1, 2008 and there was no Article X on handat December 31, 2008. All units on hand at December 31, 2008 were complete as toprocessing. There were no factory overhead variances. Acer Company uses the marketvalue at split-off point to allocate joint cost. Compute for the cost of goods sold forProduct B for the year ended December 31, 2008.

Solution:

4. Acer Company buys Article X for P0.80 per unit. At the end of processing in Department1, Article X split-off into Product A, B, and C. A is sold at the split-off point with no furtherprocessing; B and C require further processing before they can be sold; B is processed inDepartment 2; and C is processed in Department 3. The following is a summary of costsand other related data for the year ended December 31, 2008:

Department 1

Department 2

Department 3

Cost of Article X P 96,000 - -Direct Labor 14,000 45,000 65,000Factory Overhead 10,000 21,000 49,000

Product A Product B Product CUnits sold 20,000 30,000 45,000Units on hand, December31, 2008

10,000 - 15,000

Sales P 30,000 P 96,000 P 141,750

There were no inventories on hand at January 1, 2008 and there was no Article X on handat December 31, 2008. All units on hand at December 31, 2008 were complete as to

processing. There were no factory overhead variances. Acer Company uses the marketvalue at split-off point to allocate joint cost. Compute for the cost of ending inventory forProduct A.

Solution:

Difficult5. Ericsson Company manufactured joint products X and Y as well as by-product Z.

Cumulative joint cost data for the period show P204,000, representing 20,000 completedunits processed through the Refining Department at an average cost of P10.20. Costsare assigned to X and Y by the market value method, which considers further processingcosts in subsequent operations. To determine the cost allocation to Z, the market value(reversal cost) method is used. Additional data:

Z X YQuantity processed 2,00

08,00

010,000

Sales price per unit P 6 P 20 P 25Further processing cost per unit 2 5 7Marketing and administrativeexpense per unit

1 - -

Operating profit per unit 1 - -

Compute for the joint cost allocated to Z.

Solution: