COST ACCOUNTING AND COST MANAGEMENT

Easy
1. 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 and
interpreting decisions made by management [B] planning and control [C]tax
administration and compliance with all the requirements of governmental regulatory
bodies [D] protection of assets.
3. The collection, presentation and analysis of cost data should serve the following
essential uses or aims, except: [A] planning profit by means of budgets [B] controlling
costs via responsibility accounting [C] assisting in establishing selling prices and a
pricing policy [D] furnishing relevant cost data for evaluation of decisions made
by management.
4. The following are examples of variable cost, which one is the exception: [A] sales
commission [B] depreciation [C] royalties [D] overtime premiums.
5. The following are examples of factory overhead, which is not included: [A] overtime
premiums [B] cost of spoilage and rework not chargeable to a particular job [C] power
used 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 expenditures
are costs that will benefit only the current period. [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.
7. The following are the characteristics of variable cost, which one is not included: [A] costs
tend to vary or change in total amount in an indirect proportion to volume of
activity [B] comparatively constant cost per unit in the face of changing volume [C]
easy and reasonable accurate assignments to operating departments [D] control of their
incurrence 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 reports
are in the form of one set of all-purpose financial statements that will serve the needs of
both external and internal users. [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.
Difficult
9. Statement I: Financial Accounting reports are prepared and required not only by
shareholders, prospective investors, and creditors but also by the different regulatory
bodies; Statement II: Management Accounting is optional for its existence and function
since 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 I
is false, statement II is true.
10. Cost accounting is area of accounting concerned with cost determination, cost control
and cost analysis. Which of the following statements is a description pertaining to cost
analysis? [A] refers to the accumulation of cost data by products, processes or services
to be able to arrive at a unit cost or cost per work unit [B] refers to the comparison of
standards set for costs per unit and per work unit with the figures per actual operations
so that remedial measures may be adopted [C] refers to the use of cost data by
management in decision-making [D] none of the choices.

Easy
1. The following data have been taken from the accounting records of Davis Corporation for
the just completed year:
Administrative expenses
P
600,000
Direct labor
800,000
Finished goods inventory, beginning
480,000
Finished goods inventory, ending
640,000
Manufacturing overhead
920,000
Purchases of raw materials
480,000
Raw materials inventory, beginning
160,000
Raw materials inventory, ending
280,000
Sales
3,960,000
Selling expenses
560,000
Work in process inventory, beginning
280,000
Work 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 for
the just completed year:
Administrative expenses
P
600,000
Direct labor
800,000
Finished goods inventory, beginning
480,000
Finished goods inventory, ending
640,000
Manufacturing overhead
920,000
Purchases of raw materials
480,000
Raw materials inventory, beginning
160,000
Raw materials inventory, ending
280,000
Sales
3,960,000
Selling expenses
560,000
Work in process inventory, beginning
280,000
Work 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 Companys income
statement for the year ended December 31, 2009: Legal and audit fees, 1,700,000; Rent
for office space, 2,400,000; Interest on inventory loan, 2,100,000; Loss on abandoned
data, processing equipment used in operations, 1,350,000. The office space is used
generally by Lees sales department. What amount of the above-listed items should be
classified 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 loss
accounts: 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;
Sales
salaries/commissions, 1,400,000. One half- of the rented premises are occupied by the
sales department. Brocks total selling expenses for 2009 should be? [A] 3,700,000 [B]
4,800,000 [C] 3,000,000 [D] 4,000,000.
Solution:

Difficult
5. For each unit of product manufactures, a company incurs direct materials cost of P30,
direct labor of P35 and variable overhead of P10. The companys monthly fixed
overhead is P150,000. Compute for the total production cost if the company produces
20,000 units. [A] 1,700,000 [B] 1,650,000 [C] 1,800,000 [D] 1,950,000.
Solution:

JOB ORDER COST SYSTEM

Easy
11. 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] is
apportioned to cost of goods sold and finished goods inventory [D] depends on the
significance 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] overhead
allocation [D] none of the choices.
13. The most widely used methods of service allocation are (in increasing order of
sophistication) would be: [A] direct method, step-down method, and reciprocal

method [B] step-down method, direct method, and reciprocal method [C] reciprocal
method, direct method, and step-down method [D] step-down method, reciprocal
method, and direct method.
14. Scrap materials may be accounted for in any of the following, except: [A] additional
revenue [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 salable
condition [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, cross
allocation 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 directly
to 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 the
producing departments. No consideration is given to services performed by one service
department for another service department [A] reciprocal method [B] direct method
[C] step-down method [D] service bay method.
Difficult
19. Statement I: Waste refer to filings or excessive trimmings of materials, defective
materials that cannot be returned to vendor or not suitable for manufacturing
operations, or broken parts as a result of an employee error or machine breakdowns that
causes the product in a poor quality condition; Statement II: Scarp materials is the
amount of raw materials left over from a production process or production cycle for
which there are no further use [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.
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 within
the department or cost center are heterogeneous or dissimilar type of products. [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. Paula Company ha inventories at the beginning and end of 2010 as follows:
January 1, 2010
Raw materials
Work-in-process
Finished goods

P 55,000
96,000
50,000

December 31,
2010
P 65,000
80,000
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 Paulas cost
of goods sold for 2010.
Solution:

2. Healthy Company had the following inventories at the beginning and end of March 2010:
Direct materials
Work-in-process
Finished goods

March 1, 2010
P 36,000
18,000
54,000

March 31, 2010

P 30,000
12,000
72,000

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

Moderate
3. 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 factory
overhead 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 for
February 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 direct
labor. The cost of goods manufactured for February was?
Solution:

4. 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 factory
overhead 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 for
February 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 direct
labor. Over or underapplied factory overhead should be closed to the cost of goods sold
account at February 28 in the amount of?
Solution:

Difficult
5. Under Hermione Companys job order cost system; estimated costs of defective
work(considered normal in the manufacturing process) are included in the predetermined
factory overhead rate. During March, Job No. 210 for 2,000 handsaws was completed at
the following costs per unit:
Direct materials
Direct labor
Factory overhead (applied at 150% of Direct
Labor cost)

P
5
4
6
P
15

Final inspection disclosed 100 defective saws, which were reworked at a cost of P2 per
unit for direct labor, plus overhead at the predetermined rate. The defective units fall
within the normal range. What is the total rework cost and to what account should it be
charged?
Solution:

ACCOUNTING FOR MATERIALS AND LABOR

Easy
1. 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 authorization
for the vendor/supplier to deliver the specified quantity and type of materials described
therein 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 the
costs of those units when bought are the same costs that are charged to production
when issued [A] FIFO method [B] LIFO method [C] Average method [D] specific
identification method.
4. Labor cost control refers to keeping track of labor costs in total and per unit, comparing
them with predetermined figures and adopting remedial measures in case there are
variances. Labor cost control requires all of the following, except: [A] use of labor
standards 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.
Moderate
6. 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 is
treated 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, statement
II 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 they
actually worked and on unworked regular holidays; Statement II: Daily-paid employees
refer 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 statements
are true [C] statement I is true, statement II is false [D] statement I is false, statement II
is true.
8. This involves the determination of the total number of hours worked by an employee and
how this total is accounted for [A] payroll procedures [B] timekeeping procedures [C]
charging labor cost to production [D] payslip distribution.
Difficult
9. 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 of
the program is housing loan assistance to employee members. Which of the following is
the 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 daily
basic wage for any unworked regular holiday. This means that the employee is entitled
to 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 the
holiday; Statement II: All covered employees shall be entitled to holiday pay when they
are on leave of absence with pay. Employees who are on leave of absence without pay
on the day immediately preceding a regular holiday may not be paid the required holiday
pay 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 I
is false, statement II is true.

Easy
1. The following data were taken from the records of Sharon Company:
March 1,
March 31,
2010
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-order
costing system. There is always some spoilage in each production run. The following
costs relate to the current run:

Estimated overhead (exclusive of spoilage)

Spoilage (estimated)
Sales value of spoiled frames
Labor hours

P 160,000
25,000
11,500
100,000

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

Moderate
3. 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:
Departmen
tX
P 600,000
200,000
600,000

Departmen
tY
P 400,000
500,000
100,000

Departme
nt Z
P 200,000
400,000
200,000

Direct materials
Direct labor
Manufacturing
overhead
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. The
corporation applies manufacturing overhead to each job on the basis of direct labor cost
using departmental rates predetermined at the beginning of the year based on the
manufacturing 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 were
in process:

Materials
Direct Labor
Applied
Factory
Overhead
Total

Job
369
P
4,000
2,000
3,000

Job
372
P
1,400
600
900

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, direct
labor cost, P20,000, and actual factory overhead of P32,000. Factory overhead is applied
at the rate of 150% of direct labor cost. The only job still in process at the end of June is
Job 379, with costs of P2,800 for materials and P1,800 for direct labor. Job 376, the only
finished job on hand at the end of June, has a total cost of P4,000. The cost of goods sold
at normal amounted to?
Solution:

Difficult
5. 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 corporations books and records:
Total manufacturing cost added during 2011 based on actual direct materials, actual
direct 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 and
applied factory overhead, P970,000.
Applied factory overhead to work in process based on direct labor cost, 75%. Applied
factory 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 of
department required for establishing accurate departmental overhead rates with which
to 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 overhead
charges, 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 charges
are 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 and
personnel were in continuous operation at peak efficiency at all times [A] expected
capacity [B] normal capacity [C] practical capacity [D] maximum capacity.
5. It is the volume that does not expect full utilization and does make allowance for
unavoidable idleness of men and machinery, including delays caused by maintenance
and repair, machine set-up, fatigue and time lost through vacations and holidays [A]
expected capacity [B] normal capacity [C] practical capacity [D] maximum capacity.
Moderate
6. 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 cyclical
fluctuations in sales volume. [A] expected capacity [B] normal capacity [C] practical
capacity [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 machinery
employed, organization of the firm, type of labor used, and wage rates applied. Certain
guiding principles should be observed in selecting a basis, except: [A] the rate must be
easily computed [B] the factor chosen as the basis must be one that can easily be
measured for each job [C] there must be some direct relationship between the amount of
overhead 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 using
one 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 amount
involved 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-inprocess [C] closed to income summary [D] some other accounts.
Difficult
9. Statement I: An overhead rate may be incorrect because of misjudgments regarding
estimated overhead or anticipated activity; Statement II: The best way to detect an
incorrect overhead rate is to analyze the factors used in its predetermination [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.
10. Statement I: When interim financial statements are prepared and factory overhead is
closed monthly or quarterly, the under or overapplied overhead costs resulting from
normal causes are carried forward on the statement of financial position as deferred
charges for underapplied costs, or deferred credits for overapplied costs; Statement II:
The factory overhead control account collects actual expenses as debits and applied
expenses 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
Actual factory overhead
Applied factory overhead
Estimated labor hours

P 74,800
P 78,300
P 76,500
44,000

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

2. During the current accounting period, a manufacturing company purchased P70,000 of

raw materials, of which P50,000 of direct materials and P5,000 of indirect materials were
used in production. The company also incurred P45,000 of total labor costs and P20,000
of other factory overhead costs. An analysis of the work-in-process control account
revealed P40,000 of direct labor costs. Based upon the above information, what is the
total amount accumulated in the factory overhead control account?
Solution:

Moderate
3. 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 year
totaled 105,000, while the factory overhead control account at the end of the year
showed a balance of P540,000. How much was the under or overapplied factory
overhead for the year?
Solution:

4. The following cost data were taken from the records of a manufacturing company:
Depreciation on factory equipment
Depreciation on sales office
Advertising
Freight-out
Wages of production workers
Raw materials used

P
1,000,00
0
500,000
7,000,00
0
3,000,00
0
28,000,0
00
47,000,0

00
10,000,0
00
2,000,00
0
500,000
1,500,00
0
2,000,00
0

Sales salaries and commissions

Factory rent
Factory insurance
Materials handling
Administrative salaries

Based upon the above information, the manufacturing costs incurred during the year
were?
Solution:

Difficult
5. Tasty Treat Company prepares, packages, and distributes six frozen vegetables in two
different sized containers. The different vegetables and different sizes are prepared in
large batches.
The company employs a normal cost job order costing system.
Manufacturing overhead is assigned to batches by a predetermined rate on the basis of
direct labor hours. The manufacturing overhead costs incurred by the company during
two recent years (adjusted for changes using current prices and wage rates) are
presented below:
Direct labor hours worked
Manufacturing overhead costs
incurred:
Indirect labor
Employee benefits
Supplies
Power
Head and light
Supervision
Depreciation
Property taxes and insurance
Total overhead costs

2011
2,760,000

2012
2,160,000

P
11,040,00
0
4,140,000
2,760,000
2,208,000
552,000
2,865,000
7,930,000
3,005,000
P
34,500,00
0

P
8,640,000
3,240,000
2,160,000
1,728,000
552,000
2,625,000
7,930,000
3,005,000
P
29,880,00
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 it
exceeds the normal limits [A] abnormal lost units [B] normal lost units [C] normal
shrinkage [D] abnormal shrinkage.
2. When should process costing techniques be used in assigning costs to products? [A] if
the product is manufactured on the basis of each order received [B] when production is
only partially completed during the accounting period [C] if the product is composed
of mass-produced homogeneous units [D] whenever standard costing techniques
should not be used.
3. Which of the following is a characteristic of a process costing system? [A] work-inprocess inventory is restated in terms of completed units [B] costs are
accumulated 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 in
accounting for production costs? [A] road builder [B] electrical contractor [C] newspaper
publisher [D] automobile repair shop.
5. An equivalent unit of material or conversion cost is equal to [A] the amount of
material or conversion cost necessary to complete one unit of production [B] a
unit work-in-process inventory [C] the amount of material or conversion cost necessary
to start a unit of production in work-in-process [D] fifty percent of the material or
conversion cost of a unit of finished goods inventory (assuming a linear production
pattern).
Moderate
6. 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 costing
while upon completion for job order costing [B] costs are accumulated per department
for process costing in contrast to job order costing, which is by orders [C] production is
reported 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 be
considered in the computation of the equivalent units of production for which 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.

8. The units transferred in from the first department to the second department should be
included in the computation of the equivalent units for the second department under
which 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.
Difficult
9. 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 of
completion for the current period only is included in the calculation of the [A] Beginning
Work-In-Process Inventory No; Ending Work-In-Process Inventory No [B] Beginning
Work-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 report
when materials are added in a department subsequent to the first department and the
added materials result in additional units? [A] the first departments unit cost is
increased, which necessitates an adjustment of the transferred-in unit cost [B] the first
departments unit cost is decreased, which necessitates an adjustment of the
transferred-in unit cost [C] the first departments unit cost is increased, but it does
not necessitate an adjustment of the transferred-in unit cost [D] the first departments
unit cost is decreased, but it does not necessitate an adjustment of the transferred-in
unit cost.

Easy
1. 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 units
remained in work-in-process which was 40% complete as to conversion cost. Direct
materials are added at the beginning of the process. How many units were started
during 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:
Unit started in process

110,0

Department 2:
Units received from

80,0

Units transferred to
Department 2
Units in process, end

00
80,00
0
30,00
0

Department 1
Units transferred to
finished stock
Units in process, end

00
61,4
00
18,6
00

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

Moderate
3. Department II of Charity Manufacturing Company presents the following production data
for the month of May, 2011:
Opening inventory, 3/8 completed
4,000
units
Started in process
13,000
units
Transferred
9,000
units
Closing inventory, completed
4,000
units
Closing inventory, completed
4,000
units
What are the equivalent units of production for the month of May, 2011 using FIFO
Method?
Solution:

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

for the month of May, 2011:

Opening inventory, 3/8 completed

Started in process
Transferred
Closing inventory, completed
Closing inventory, completed

4,000
units
13,000
units
9,000
units
4,000
units
4,000
units

What are the equivalent units of production for the month of May, 2011 using Average
Method?
Solution:

Difficult
5. The Bahamas factory of New England Chemical produces environmental chemicals in
processes in which normal loss takes place and while abnormal loss were discovered at
the end. Management considers normal spoilage to be 0.5 percent or less of gallons of
material placed into production. The following operating statistics are available for
September 2011 for the chemical XZP:
Beginning inventory (20% complete as to material; 30% complete
as to conversion)
Started during September
Ending inventory (60% complete as to material; 70% complete as
to conversion)
Spoiled

8,000
gallons
180,000
gallons
4,000
gallons
1,400
gallons

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

JOINT AND BY-PRODUCT COSTING

Easy
1. 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 average
method.
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 the
by-product [C] a deduction from the cost of goods sold of the by-product [D] additional
sales revenue.
3. Refers to two or more products manufactured simultaneously by a common series of
processing operations with each product possessing more than a nominal value in the
form in which they are produced is called [A] co-products [B] main products [C] joint
products [D] by-products.
4. Refers to the production of two or more products at the same time but not necessarily
from the same processing operations or the same raw materials is called [A] coproducts [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 whether
to continue producing an item [C] controlling costs [D] determining inventory cost for
accounting 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, labor
and overhead [B] materials and labor only [C] labor and overhead only [D] overhead
and materials only.
7. At the split-off point, products may be immediately salable or may require further
processing. Which of the following products have both of these characteristics? [A] ByProducts No; Joint Products No [B] By-Products No; Joint Products Yes [C] ByProducts 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] ByProducts 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-off
method could be used in which of the following situations? [A] No Costs Beyond SplitOff Yes; Cost Beyond Split-Off Yes [B] No Costs Beyond Split-Off Yes; Cost
Beyond 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 joint
product 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] relative
sales value of the products produced in the process.

Easy
1. 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. Production
data pertaining to these products for the year ended December 31, 2010 are as follows:
Jana

Reta

Bynd

Joint costs:
Variable

P
88,000
148,00
0

Fixed
Separable costs:
Variable
Fixed
Production
in
pounds
Sales price per
pound

Total

P
50,000
P 4.00

P
120,00
0
90,000
40,000
P 7.50

P
3,000

123,00
0

2,000
10,00
0
P 1.10

92,000
100,00
0

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 allocated
to joint products to achieve the same profit percentage for each joint product. Net
revenue from by-product Bynd is deducted from joint production costs of the main
product. 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. Production
data pertaining to these products for the year ended December 31, 2010 are as follows:
Jana

Reta

Bynd

Joint costs:
Variable

P
88,000
148,00
0

Fixed
Separable costs:
Variable
Fixed
Production
in
pounds
Sales price per
pound

Total

P
50,000
P 4.00

P
120,00
0
90,000
40,000
P 7.50

P
3,000

123,00
0

2,000
10,00
0
P 1.10

92,000
100,00
0

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 allocated
to joint products to achieve the same profit percentage for each joint product. Net
revenue from by-product Bynd is deducted from joint production costs of the main
product. Compute for the joint costs allocated to Reta.
Solution:

Moderate
3. 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 further
processing; B and C require further processing before they can be sold; B is processed in
Department 2; and C is processed in Department 3. The following is a summary of costs
and other related data for the year ended December 31, 2008:
Departmen

Departmen

Departmen

Cost of Article X
Direct Labor
Factory Overhead
Units sold
Units on hand, December
31, 2008
Sales

t1
P 96,000
14,000
10,000

t2
45,000
21,000

t3
65,000
49,000

Product A
20,000
10,000

Product B
30,000
-

Product C
45,000
15,000

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 hand
at 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 market
value at split-off point to allocate joint cost. Compute for the cost of goods sold for
Product 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 Department
1, Article X split-off into Product A, B, and C. A is sold at the split-off point with no further
processing; B and C require further processing before they can be sold; B is processed in
Department 2; and C is processed in Department 3. The following is a summary of costs
and other related data for the year ended December 31, 2008:

Cost of Article X
Direct Labor
Factory Overhead
Units sold
Units on hand, December
31, 2008
Sales

Departmen
t1
P 96,000
14,000
10,000

Departmen
t2
45,000
21,000

Departmen
t3
65,000
49,000

Product A
20,000
10,000

Product B
30,000
-

Product C
45,000
15,000

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 hand
at 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 market
value at split-off point to allocate joint cost. Compute for the cost of ending inventory for
Product A.
Solution:

Difficult
5. 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 completed
units processed through the Refining Department at an average cost of P10.20. Costs
are assigned to X and Y by the market value method, which considers further processing
costs in subsequent operations. To determine the cost allocation to Z, the market value
(reversal cost) method is used. Additional data:
Quantity processed
Sales price per unit
Further processing cost per unit
Marketing
and
administrative
expense per unit
Operating profit per unit
Compute for the joint cost allocated to Z.
Solution:

Z
2,00
0
P 6
2
1

X
8,00
0
P 20
5
-

Y
10,0
00
P 25
7
-