FINAL DEPARTMENT EXAMINATION

COST ACCOUNTING

Multiple Choice: Select the letter of the correct answer. Provide solutions for problems.

Use the following to answer numbers 1-3:

Noritake Household Inc. is a rapidly growing company that has not been profitable despite increases in
sales. It has invited you as a consultant to find ways to improve profitabilty. You believe that the
problems results from the poor cost control and inaccurate estimation of jobs. The company has
essentially no accounting system from which to collect data. You are able, however, to piece together the
following information for August:
> Production
1. Completed Job 82
2. Started and Completed Job 82
3. Started Job 83
> Inventory Values- Work in process
1. July 31: Job 81
Direct Materials 4,000
Labor (960 hours @ P20) 19,200
2. August 31: Job 83
Direct Materials 3,200
Labor (1,040 hours @ P20) 20,800
> Each job in work in process was exactly 50% completed as to direct labor hours, however, all
direct materials necessary to do the entire job were charged to each job as soon as it was started.
> There were no direct material inventories or finished good inventories on either July 31 or
August 31.
> Actual overheas was P40,000.
> Cost of goods sold (before adjustment for over/under applied overhead)
Job 81: Job 82:
Materials 4,000 Materials ?
Labor ? Labor ?
Overhead ? Overhead ?
Total 61,600 Total ?
> Overhead was applied to jobs using a predetermined rate per labor pesos that has been used since
the company began operating.
> All direct materials were purchased for cash and charged directly to work in process when
purchased. Direct materials purchased in August amounted to P9,200.
> Direct labor costs charged to jobs in August were P64,000. All costs were the same per hour for
all laborers in August.
> Assume that any under (over) applied factory overhead is considered insignificant.

1. How much is the total cost of Job 82?

a. P30,000 b. P42,000 c. P36,000 d. cannot be determined
2. What is the total cost of goods manufactured?
a. P103,600 b. P126,400 c. P107,600 d. P91,600
3. What is the total cost of goods sold?
a. P109,600 b. P113,600 c.P106,300 d. P103,600

4. Elton company uses job order costing system and the following information is available from its
records. The company has three jobs in process: #6, #9 and #13.
Raw materials used P120,000
Direct labor per hour P8.50
Overhead applied based on direct labor cost 120%

Direct materials were requisitioned as follows for each job respectively: 30%, 25% and 25%; the
balance of the requisitions was considered indirect. Direct labor hours per job are 2,500; 3,100;
and 4,200 respectively. Indirect labor is P33,000. Other actual overhead costs totalled P36,000.
Assume the balance in work in provess was P18,500 on June 1 and P25,297 on June 30. The
balance on June 30 represents one job that contains direct material of P11,250. How many direct
labor hours have been worked on this job?
a. 751 b. 725 c. 775 d. 780

5. During September, Iranian Manufacturing Company completed 50,000 units costing P600,000,
 exclusive of spoilage allocation. Of these completed units, 25,000 were sold during the month.
An additional 10,000 units costing P80,000 were 50% complete at September 30. All units were
inspected at the completion of the process. Normal spoilage for the month was P7,000 and
abnormal spoilage was P32,500. How much is the total spoilage that should be charged against
revenue?
a. P39,500 b. P32,500 c. P25,500 d. P36,000

Use the following to answer number 6-7:

Believing that traditional cost system may be providing misleading information, Derrick
Manufacturing Company is considering an activity-based costing approach. It now employs a
full-costing and has been applying its manufacturing overhead on the basis of machine hours. The
organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming
year. The following data show the manufacturing overhead that is budgeted.

Activity Cost Driver Budgeted Activity Budgeted Cost

Materials Handling No. of parts handled 3,600,000 360,000
Setup No. of setups 30,000 157,500
Machining Machine hours 20,000 270,000
Quality Control No. of batches 50,000 112,500

Costs, sales and production data for one of the organization's products for the coming year are as
follows:
Prime costs:
Direct materials cost per unit P12.20
Direct labor cost per unit (P1.5 DLH @ P15) 22.50

Sales and production data:

Expected sales 50,000 units
Batch Size 4,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 1,200 MH per batch

6. If the organization uses the traditional full cost system, the cost per unit for this product for the
coming year will be:
a. P44.50 b. P40.25 c. P43.70 d. P45.30
7. If the organization employs an activity-based costing system, the cost per unit for product
described for the coming year will be:
a. P39.25 b. P44.50 c. P35.50 d. P37.50

Use the following to answer numbers 8-10:

Rosy Manufacturing Company identified the following costs and cost drivers for the coming year:

Overhead Item Cost Driver Budgeted Overhead

Material Handling No. of parts 225,000
Material Inspection No. of parts 2,475,000
Automated Machinery Machine hours 840,000
Finishing Direct labor hours 170,000
Packaging Orders shipped 170,000

The following information was collected on three jobs that were completed during the year:

Description Job 601 Job 702 Job 803

Units to be produced 10,000 5,000 2,000
Orders to be shipped 1,000 500 200
Number of parts per unit 10 15 25
Machine hours per unit 1 3 5
Labor hours per unit 2 2 2

Traditionally, the company allocated factory overhead based on direct labor hours. The company operated
in a competitive market and set product prices at cost plus 50% mark-up.
8. Using traditional costing, how much is the total manufacturing overhead cost of Job 702?
a. P1,141,200 b. P570,600 c. P1,500,000 d. P750,000
9. What is the application rate for the material handling activity and finishing activity?
a. P1 and P5 b. P4500 and P50 c. P4500 and P5 d. P1.01 and P55
10. Using activity-based costing, how much is the MOH per unit cost of Job 601?
a. P137.50 b. P110 c. P164 d. P116.25
Use the following to answer numbers 11-13:

Yakal Furniture produces coffee table in a two-department process: Cutting/ Assembly and Lamination.
Varnish is added in the Lamination Department when the goods are 60% complete as to overhead.
Spoiled units are found on inspection at the end of production. The company uses the weighted average
method in costing inventory.

Production data in the Lamination Department for April 2015:

Beginning inventory (80% complete as to labor, 70% complete as to overhead) 2,000 units
Transferred in during the month 14,900 units
Ending inventory (40% complete as to labor, 20% complete as to overhead) 3,000 units
Normal spoilage (found at final quality inspection) 200 units
Abnormal spoilage (found at 30% completion as to labor and 15% as to overhead; the
sanding machine was misalign and scarred the tables) 400 units

Cost data for April 2015:

Beginning work in process inventory:
Prior department costs 15,020
Varnish 1,900
Direct labor 4,388
Overhead 11,044
Current period cost:
Prior department costs 137,080
Varnish 14,030
Direct labor 46,000
Overhead 113,564

11. The cost of transferred out is

a. P297,654 b. P306,666 c. P302,130 d. P301,777
12. The cost of ending inventory is
a. P36,360 b. P36,828 c. P36,214 d. P37,102
13. The cost of abnormal loss is
a. P0 b. P4,148.60 c. P4,253.60 d. P4,536

Use the following to answer numbers 14-15:

Total Oil Petroleum Inc. uses a process cost system to account for the production of its only product. The
product is manufactured in two departments. Units of product are started in the Cracking Department and
then transferred to the Refining Department, where they are completed. Because of the intense heat
applied in the Cracking Department, some of the production volume is lost. Since the deparment is
capital intensive, the cost of direct labor is small relative to overhead. Data related to May 2015
operations in the Cracking Department are:
Units in beginning inventory (100% materials, 40% conversion costs) 5,000
Units started in process this period 55,000
Units transferred to the Refining Department this period 49,000
Units in ending inventory (100% materials, 70% conversion costs) 6,000

Beginning inventory costs:

Materials 1,900
Conversion Costs 360
Current period costs:
Materials 20,100
Conversion Costs 7,620
14. The cost per equivalent unit of production under the FIFO method is (rounded to three decimal places)
a. P0.550 b. P0.606 c. P0.551 d. P0.712
15. The cost per equivalent unit of production under the Weighted Average method is (rounded to three
decimal places)
a. P0.551 b. P0.599 c. P0.550 d. P0.415
16. Company Q produces three products from a joint process. The products can be sold at split-off or
process further. In deciding whether to sell at split-off or process further, management should
a. allocate the joint cost to the products based on relative sales value prior to making the decision
b. allocate the joint cost to the products based on physical quantity measure prior to making the
decision
c. subtract the joint cost from the total sales value of the products before determining relative sales
value and making the decision
d. ignore the joint cost from making the decision
17. Which of the following statements is true regarding by-products or scrap?
a. Process costing is the only method that should result in by-products or scrap.
b. Job order costing system will never have by-products or scrap.
c. Job order costing system may have instances where by-products or scrap result from the production
process.
d. Process costing will never have by-products or scrap from the production process.

18. Under an acceptable method of costing by-products, inventory costs of the by-product are based on the
portion of the joint production cost allocated to the by-product
a. but any subsequent processing cost is debited to the cost of the main product
b. but any subsequent processing cost is debited to revenue of the main product
c. plus any subsequent processing cost
d. minus any subsequent processing cost

19. Which of the following is a false statement about scrap and by-products?
a. Both by-products and scrap are salable.
b. A by-product has a higher sales value than does scrap.
c. By-products and scrap are the primary reason that management undertakes the joint process.
d. Both scrap and by-products are incidental outputs to the joint process.

20. A product may be processed beyond split-off point if management believes that
a. its marketability will be enhanced.
b. the incremental cost of further processing will be less than the incremental revenue of further
processing.
c. the joint cost assigned to it is not already greater than its prospective selling price.
d. both a and b.

21. Incremental separate costs are defined as all costs incurred between _________ and the point of sale.
a. inception
b. split-off point
c. transfer to finished goods inventory
d. point of addition of disposal costs.

22. The method of pricing by-products/ scrap where no value is assigned to these items until they are
sold is know as the
a. net realizable value at split-off point method
b. sales value at split-off method
c. realized value approach
d. approximated net realizable value at split-off method

23.For purposes of allocating joint costs to joint products using relative sales value at split-off method,
the costs beyong split-off
a. are allocated in the same manner as the joint costs.
b. are deducted from the relative sales value at split-off
c. are deducted from the sales value at the point of sale
d. do not affect the allocation of the joint costs.

24. Relative sales value at split-off is used to allocate

costs beyond split-off joint costs
a. yes yes
b. yes no
c. no yes
d. no no

25. Incremental revenues and costs need to be considered when using which allocation method?
 Physical measures Sales value at split-off
a. yes yes
b. yes no
c. no no
d. no yes

Use the following to answer numbers 26-27:

Calderon Manufacturing Inc. produces chemicals for various purposes. CH1, a chemical used in swimming
pools; CH2, a chemical used in pesticides; and CH3, a by-product that is sold to fertilizer manufacturers.
Calderon uses the market value of its main products to allocate joint costs, and the FIFO inventory method
to cost the main products. The by-product is inventoried at its market value less its disposal cost, and this
value is used to reduce the joint production cost before allocation to the main products. Data regarding
March operations are presented below. During the month, Calderon Company incurred the following costs:
Materials, P510,600; Labor, P680,800. Overhead is applied to production at 75% of labor.

Description Job 601 Job 702 Job 803

Finished goods, in gallons, March 1 18,000 52,000 3,000
Sales, in gallons 650,000 325,000 150,000
Production in gallons 700,000 350,000 170,000
Sales value per gallon at split-off pt. - - 0.70
Additional processing cost 8,740,000 816,000 -
Final sales value per gallon 4 6 -

*Disposal cost of P0.10 per gallon, which is incurred in order to sell the product, have not been deducted to
arrive at this sales value.
26. The production cost per gallon of CH1 is
a. P2.83 b. P1.37 c. P2.62 d. P2.73
27. The value of the Finished goods inventory of CH2 at the end of March is
a. P216,320 b. P320,320 c. P462,000 d. P344,960

Use the following to answer numbers 28-30:

Brooks Company produces joint products M and N, together with a by-product O. M is sold at split-off point,
but N and O undergo additional processing. Production data pertaining these products for the year ended
December 31, 2015 are as follows:
Description M N O Total
Joint costs 472,000
Separable costs - 420,000 10,000 430,000
Production in pounds 100,000 80,000 20,000 200,000
Sales price per pound P8 P15 P2.20
Inventory end in pounds 18,000 24,000
No materials are spoiled in production. Joint costs are allocated to joint products using the constant margin
approach. Net revenue from by-product is deducted from joint production costs.
28. The joint cost allocated to M and N respectively is
a. P343,200 & P94,800 b. P343,200 & P420,000 c. P343,200 & P128,800 d. P238,987 & P233,013
29. The gross profit for M and N respectively is
a. P456,800 & P651,200 b. P456,800 & P685,200 c. P456,800 & P780,000 d. P561,013 & P546,987
30. The value of finished goods at the end for M and N respectively is
a. P54,000 & P144,000 b. P154,440 & P61,776 c. P61,776 & P154,440 d. P144,000 & P360,000

31. Which of the following statements regarding standard cost systems is true?
a. Favorable variances are not necessarily good variances.
b. Managers will investigate all variances from standard.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in the future.

32. In standard cost system, Work in Process Inventory is ordinarily debited with
a. actual costs of material and labor and a predetermined overhead cost for overhead.
b. standard costs based on level of input activity (such as direct labor hour worked).
c. standard costs based on production output.
d. actual costs of material, labor and overhead.

33. A purpose of standard costing is to

 a. replace budgets and budgeting
b. simplify costing procedures
c. eliminate the need for actual costing for external reporting purposes
d. eliminate the need to account for year-end underapplied or overapplied manufacturing overhead

34. Standard costs

a. are estimates of costs attainable only under the mose ideal conditions
b. are difficult to use with a process costing system
c. can, if properly used, help motivate employees
d. require that significant unfavorable variances be investigated, but do not require that significant
favorable variance be investigated

35. A total variance is best defined as the difference between total

a. actual cost and total cost applied for the standard output of the period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.

36. Which of the following factors should not be considered when deciding whether to investigate a variance?
a. magnitude of the variance
b. trend of the variance over time
c. likelihood that an investigation will reduce or eliminate future occurences of the variance
d. whether the variance is favorable or unfavorble

37. At the end of a period, a significant material quatity variance should be

a. closed to Cost of Goods Sold
b. allocated among Raw Material, Work in Process, Finished Goods, and Cost of Goods Sold
c. allocated amount Work in Process, Finished Goods, and Cost of Goods Sold
d. carried forward as a balance sheet account to the next period

38. If actual direct labor hours (DLHs) are less than standard direct labor hours allowed and overhead is applied
on a DLH basis, a(n)
a. favorable variable overhead spending variance exists
b. favorable variable overhead efficiency variance exists
c. favorable volume variance exists
d. unfavorable volume variance exists

39. A company has a favorable variable overhead spending variance, an unfavorable variable overhead
efficiency variance and underapplied variable overhead at the end of a period. The journal entry to
record these variances and close the variable overhead control will show which of the following?
VOH spending variance VOH efficiency variance VMOH
a. debit credit credit
b. credit debit credit
c. debit credit debit
d. credit debit debit

40. A company may set predetermined overhead rates based on normal, expected annual, or
theoretical capacity. At the end of a period, the fixed overhead spending variance would
a. be the same regardless of the capacity level selected
b. be the largest if theoretical capacity had been selected
c. be the smallest if theoretical capacity had been selected
d. not occur if actual capacity were the same as the capacity level selected

Use the following to answer numbers 41-42:

On May 1, 2015, Bovar Inc. began the manufacture of a new paging machine known as Dandy. The company
installed a standard costing system to account for manufacturing costs. The standard costs for a unit of
Dandy are as follows:
Direct materials (3 lbs at P5 per lb) P15
Direct labor (1/2 hr at P20 per hr) 10
Overhead (75% of direct labor)
The following data were obtained from Bovar's records for the month of May:
Description Debit Credit
Revenues 125,000
Accounts payable (for May purchases of direct materials) 68,250
Direct materials price variance 3,250
Direct materials quantity variance 2,500
Direct labor rate variance 1,900
Direct labor efficiency variance 2,000
Actual production in May was 4,000 units of Dandy, actual sales in May were 2,500 units. The amount shown
above for direct materials price variance applies to materials purchased during May. There was no
beginning inventory of materials on May 1, 2015.
41. The actual direct labor rate is
a. P21 b. P10 c. P20.90 d. P20.86
42. The actual direct materials price per pound is
a. P5 b. P5.25 c. P5.46 d. P5.69

Use the following to answer numbers 43-45:

Degas Painting Inc. paints interiors of residences and commercial structures. The management has
establihed cost standards based on the amount of area to be painted:

Direct materials (P18 per gallon of paint) P1.5 per 100 square feet
Direct labor P2 per 100 square feet
Variable overhead P0.60 per 100 square feet
Fixed overhead (based on 600,000 square feet per month) P1.25 per 100 square feet
Management has determined that 400 square feet can be painted by the average worker each hour. During
May 2015, the company painted 600,000 square feet of wall and ceiling spaces. The following costs were
incurred:
Direct materials (P450 gallons purchased and used) 8,550.00
Direct labor (1,475 hours) 12,242.50
Variable overhead 3,420.00
Fixed overhead 7,740.00
43. The material usage variance is
a. P900F b. P900 UF c. P450 UF d. P450 F
44. The labor efficiency variance is
a. P200 F b. P200 UF c. P442.5 F d. P442.5 UF
45. The overhead spending variance is
a. P60 UF b. P185 F c. P125 UF d. P120 UF

46. The _______ is a "pull system" of production and inventory control.

a. EDI
b. EOQ
c. JIT
d. ABC

47. In a JIT system, the quality of each product begins with

a. a company's vendors
b. employees
c. inspection of finished goods inventory
d. a good product warranty

48. Reducing setup time is a major aspect of

a. all push inventory systems
b. the determination of safety stock quantities
c. a JIT system
d. an EOQ system

49. Reducing inventory to the lowest possible levels is a major focus of

a. JIT
b. push inventory systems
c. EOQ
d. ABC

50. JIT is a philosophy concerned with

a. when to do something
b. how to do something
c. where to do something
 d. how much of something should be done

51. When JIT is implemented, which of the following changes in the accouting system would not be expected?
a. fewer cost allocations
b. elimination of standard costs
c. combining labor and overhead into one product cost category
d. combining raw materials and materials in work-in-process into one product cost category

52. Striving for flexibility in the number of products that can be produced in a short period of time is
charateristic of
a. EOQ systems
b. push systems in general
c. JIT
d. pull systems in general

53. Just-in-time (JIT) inventory systems

a. result in a greater number of suppliers for each production process
b. focus on a "push" type of production system
c. can only be used with automated production processes
d. result in inventories being either greatly reduced or eliminated

54. The JIT philosophy does not focus on

a. standardizing parts used in products
b. eliminating waste in the production process
c. finding the absolute lowest price for purchased parts
d. improving quality of output

55. In a JIT manufacturing environment, product costing information is least important for use in
a. work in process inventory valuation
b. pricing decisions
c. product profitability analysis
d. make-or-buy decisions

56. Heritage Manufacturing Inc. 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 costs components are estimated and inventory account balances are adjusted accordingly.
Raw material cost is backflushed from RIP to Finished goods. The following information is noted for the
month of September:
Beginning balance of RIP account, including P1,400 of conversion cost 31,000
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. P365,400

57. The Parker Manufacturing Inc. produces only for customer order and most work is shipped within
thirty-six hours from the receipt of an order. Parker uses a Raw and in process (RIP) inventory account and
expenses all conversion costs 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
September:
Beginning balance of RIP account, including P1,300 of conversion cost 12,300
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. P246,000 b. P246,200 c. P247,000 d. P245,000

Use the following to answer numbers 58-60:

The general manager of a highly automated coffee production plant in Amadeo Cavite has been provided the
following information for transactions that occured during October. The production plant uses a JIT costing
system.
> Raw materials costing P300,000 were purchased.
> All materials costing P300,000 were requisitioned for the production.
 > Direct labor costs of P200,000 were incurred.
> Actual factory overhead costs amounted to P995,000.
> Applied conversion costs were P1,300,000. This includes the direct labor cost.
> All units are completed and immediately sold.
58. Determine the October 31 balance of Cost of Goods Sold account. No adjustment has been made for the
overapplied or underapplied conversion cost.
a. P1,300,000 b. P1,495,000 c. P1,600,000 d. P1,195,000
59. Using the same information in No. 58, what was the overapplied or underapplied conversion cost for
the month?
a. P305,000 overapplied
b. P195,000 underapplied
c. P105,000 overapplied
d. P105,000 underapplied
60. A513Using the same information in No. 58, what is the amount of Cost of Goods Sold after all
transactions and adjustments have been completed?
a. P1,304,000 b. P1,495,000 c. P1,600,000 d. P1,195,000