CHAPTER 3 COST ACCOUNTING CYCLE

Multiple Choice – Theories

1. Cost of goods sold is

a. An expense
b. A period cost
c. Is an asset
d. None of the above

Answer: A

2. For a manufacturing company, the cost of goods sold available for sale during a
given accounting period is
a. The beginning inventory of finished goods
b. The cost of goods manufactured during the period
c. The sum of the above
d. None of the above

Answer: C

3. Which of the following would not be classified as manufacturing overhead?

a. Indirect labor
b. Direct materials
c. Insurance on factory building
d. Indirect material

Answer: B

4. The wage of a timekeeper in the factory would be classified as

a. prime cost
b. direct labor
c. indirect labor
d. administrative expense

Answer: C

5. As current technology changes manufacturing processes, it is likely that direct

a. labor will increase
b. labor will decrease
c. materials will increase
d. material will decrease

Answer: B
6. Sales commissions are classified as
a. prime costs
b. period costs
c. product costs
d. indirect labor

Answer: B

7. For inventoriable costs to become expenses under the matching principle,

a. the must be finished and in stock
b. the product must be expensed based on its percentage of completion
c. the product to which they attach must be sold
d. all accounts must be settled

Answer: C

8. A manufacturing company reports cost of goods manufactured as

a. a current asset on the balance sheet
b. an administrative expense on the income statement
c. a component in the calculation of cost of goods sold
d. a component of the raw materials inventory on the balance sheet

Answer: C

9. Costs of goods manufactured in a manufacturing company is analogous to

a. Ending inventory in a merchandising company
b. Beginning inventory in a merchandising company
c. Cost of goods available for sale in a merchandising company
d. Cost of goods purchased in a merchandising company

Answer: D

10. If the amount of “Cost of goods manufactured” during a period exceeds the
amount of the “Total manufacturing costs” for the period, then
a. Ending work in process inventory is greater than or equal to the amount of
the beginning work in process inventory
b. Ending work in process is greater than the amount of the beginning work in
process inventory
c. Ending work in process is equal to the cost of goods manufactured
d. Ending work in process is less than the amount of the beginning work in
process inventory

Answer: D
Multiple Choice - Problems

1. For the year 2011, the gross margin of Jumbo Co. was P96,000; the cost of goods
manufactured was P340,000; the beginning inventories of work in process and
finished goods were P28,000 and P45,000, respectively; and the ending inventories of
work in process and finished goods were P38,000 and P52,000, respectively. The sales
of Jumbo Co. for 2011, must have been

a. 419,000
b. 429,000
c. 434,000
d. 436,000

Answer: B

Solution:
Cost of Goods Manufactured P 340,000
Finished Goods, Beginning 45,000
Total Goods available for Sale 385,000
Finished Goods, ending (52,000)
Cost of Goods Sold 333,000

Sales (SQUEEZE) P 429,000

COGS 333,000
Gross Profit 96,000

2. The following information was taken from Jeric Comapany’s accounting records for the
year ended December 31, 2011.
Increase in raw materials inventory P 15,000
Decrease in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000

There was no work-in-process inventory at the beginning or end of the year. Jeric’s
2011 cost of goods sold is

a. P 950,000
b. P 965,000
c. P 975,000
d. P 995,000

Answer: A

Solution:
 Direct Materials
Purchases 430,00
0
Less: Increase in raw 15,000 415,000
materials
Direct Labor 200,000
Factory Overhead 300,000
Manufacturing Cost 915,000
Add: Decrease in Finished Goods 35,000
Cost of Goods Sold 950,00
0
Items 3 through 5 are
based on the following information pertaining to Glenn Company’s manufacturing
operations.

Inventories 3/1/11 3/31/11

Direct Materials P 36,000 P 30,000
Work-in-process 18,000 12,000
Finished goods 54,000 72,000

Additional Information for the month of March 2011

Direct materials purchased P 84,000
Direct labor payroll 60,000
Direct labor rate per hour 7.50
Factory overhead rate/direct 10.00
labor hour

3. For the month of March 2011, prime cost was

a. P 90,000
b. P 120,000
c. P 144,000
d. P 150,000

Answer: D

Solution:

Direct Materials
Direct Mats. – Beg. 36,000
Add: Purchases 84,000
Less: Direct Mats. – End. (30,000 90,000
)
Direct Labor 60,000
Prime Cost 150,00
0
4. For the month of March 2011, conversion cost was

a. P 90,000
b. P 140,000
c. P 144,000
d. P 170,000

Answer: B

Solution:

Direct Labor 60,000

Factory Overhead 80,000
(60,000/7.50)=8000*10
Conversion Cost 140,00
0

5. For the month of March 2011, cost of goods manufactured was

a. P 218,000
b. P 224,000
c. P 230,000
d. P 236,000

Answer: D

Solution:
Direct Materials used
36,0
Direct Materials, 3/1/11 00
84,0
Add: Purchases 00
Total available for use 120,000
Less: Direct Materials,
3/31/11 30,000 90,000
60,0
Direct Labor 00
80,0
Factory Overhead 00
230,00
Total Manufacturing Costs 0
18,00
Add: Work in process, 3/1/11 0
248,00
Cost of Goods put into process 0
Less: Work in process, 3/31/11 12,000
236,00
Cost of Goods manufactured 0
Items 6 and 7 are based on the following data of Matatag Company for the month of
March 2011.

March 1 March 31
Materials 40,000 50,000
Work in Process 25,000 35,000
Finished Goods 60,000 70,000
March 1 to 31, 2011
Direct Labor Cost 120,000
FOH-Applied 108,000
Cost of Goods Sold 378,000

6. The total amount of direct materials purchased during March was:

a. 50,000
b. 170,000
c. 180,000
d. 220,000

Answer: C

7. The cost of goods manufactured during March, 2011 was:

a. 378,000
b. 388,000
c. 398,000
d. 428,000

Answer: B

Solution:
Direct materials used
Materials, Beg. 40,000
Purchases (SQUEEZE) No. 6 180,00
0
Less: Materials, End. (50,000 170,000
)
Direct Labor 120,000
Factory Overhead 108,000
Manufacturing Costs 398,000
Add: Work in process, Beg. 25,000
Cost of goods put into process 423,000
Less: Work in process, End (35,000
)
Cost of goods manufactured 388,00
(SQUEEZE) No. 7 0
Add: Finished goods, Beg. 60,000
Goods Available for Sale 448,000
Less: Finished goods, End. (70,000
)
Cost of Goods Sold 378,000
Some selected sales and cost data for Alcid Manufacturing Company are given below:

Direct materials used P 100,000

Direct labor 150,000
Factory overhead (40% variable) 75,000
Selling and administrative expenses
(50% direct, 60% variable) 120,000

8. Prime cost was:

a. P 175,000
b. P 250,000
c. P 130,000
d. P 225,000

Answer: B

Solution:

Direct materials P 100,000

Direct labor P 150,000
Prime cost P 250,000

9. Conversion cost was:

a. P 150,000
b. P 225,000
c. P 250,000
d. P 270,000

Answer: B

Solution:

Direct labor P 150,000

Factory overhead P 75,000
Conversion cost P 225,000

10. Direct cost was:

a. P 225,000
b. P 250,000
c. P 310,000
d. P 325,000

Answer: C

Solution:

Direct Selling and administrative Expense

(P 120,000 x 50%) P 60,000
 Direct materials 100,000
Direct labor 150,000
Direct cost P 310,000

11. Indirect cost was:

a. P 75,000
b. P 135,000
c. P 195,000
d. P 325,000

Answer: B

Solution:
Indirect Selling and Administrative Expense
(P 120,000 x 50%) P 60,000
Factory overhead 75,000
Indirect cost P 135,000

12. Product cost was:

a. P 135,000
b. P 250,000
c. P 325,000
d. P 370,000

Answer: C

Solution:

Direct materials P 100,000

Direct labor 150,000
Factory overhead 75,000
Product cost P 325,000

13. Variable cost was:

a. P 250,000
b. P 280,000
c. P 352,000
d. P 370,000

Answer: C

Solution:

Variable Selling and Administrative Expense

(P 120,000 x 60%) P 72,000
Direct materials 100,000
Direct labor 150,000
 Variable factory overhead (P 75,000 x 40%) 30,000
Variable cost P 352,000

During 2011, there was no change in either the raw material or the work in process
beginning and ending inventories. However, finished goods, which had a beginning
balance of P 25,000, increased by P 15,000.

14. If the manufacturing costs incurred totaled P 600,000 during 2011, the goods
available for sale must have been:

a. P 585,000
b. P 600,000
c. P 610,000
d. P 625,000

Answer: D

Solution:

Manufacturing costs P 600,000

Add: Finished goods, beginning 25,000
Goods available for sale P 625,000

During the month of May, 2011, Candid Manufacturing Co. incurred P 30,000, P 40,000,
and P 20,000 of direct material, direct labor and factory overhead costs respectively.

15. If the cost of goods manufactured was P 95,000 in total and the ending work in
process inventory was P 15,000, the beginning inventory of work in process must
have been

a. P 10,000
b. P 20,000
c. P 110,000
d. P 25,000

Answer: B

Solution:
30,000
Direct Materials
Direct Labor 40,000
Factory Overhead 20,000
Manufacturing Costs 90,000
Add: Work in process, Beg. 20,000 The Lion Company’s cost of goods
(SQUEEZE) manufactured was P 120,000 when it sales
Cost of goods put into process 110,000 were P 360,000 and its gross margin was P
Less: Work in process, End. 15,000 220,000.
Cost of Goods Manufactured 95,000
16. If the ending inventory of finished goods was P 30,000, the beginning inventory of
finished goods must have been:

a. P 10,000
b. P 50,000
c. P 130,000
d. P 150,000

Answer: B

Solution:
Sales 360,00
0
Cost of Goods Sold
Cost of goods manufactured 120,00
0
Add: Finished goods, beg. 50,00
(SQUEEZE) 0
Goods available for sale 170,00
Less: Finished goods, end. 30,000 140,00
0
The gross Gross Margin 220,00 margin for
Cruise 0 Company for
2011 was P 325,000 when
sales were P 700,000. The FG inventory was P 60,000 and the FG inventory, end was P
35,000.

17. The cost of goods manufactured was:

a. P 300,000
b. P 350,000
c. P 230,000
d. P 375,000

Answer: B

Solution:

Sales P 700,000
Less: Gross Margin (325,000)
Cost of Goods Sold P 375,000
Add: Finished Goods, end 35,000
Less: Finished Goods, beginning (65,000)
Cost of Goods Manufactured P 350,000

During the month of January, F Co.’s direct labor cost totaled P 36,000, and the direct
labor cost was 60% of prime cost.
18. If total mfg. costs during January were P 85,000, the factory overhead was:

a. P 24,000
b. P 25,000
c. P 49,000
d. P 60,000

Answer: B

Solution:

Manufacturing Costs P 85,000

Less: Prime Cost (P 36,000 / 60%) (60,000)
Factory overhead P 25,000

During 2011, there was no change in the beginning or ending balance in the Materials
inventory account for the DL Co. However, the WP inventory account increased by P
15,000, and the FG inventory account decreased by P 10,000.

19. If purchases of raw materials were P 100,000 for the year, direct labor costs was P
150,000, and manufacturing overhead cost was P 200,000, the cost of goods sold for
the year would be:

a. P 435,000
b. P 445,000
c. P 465,000
d. P 475,000

Answer: B

Solution:

Direct materials P 100,000

Direct labor 150,000
Factory overhead 200,000
Total Manufacturing Costs 450,000
Work in process (increase) (15,000)
Cost of goods Manufactured 435,000
Finished Goods (decrease) 10,000
Cost of Goods Sold P 445,000

During the month of March, 2011, Nape Co. used P 300,000 of direct materials. At March
31, 2011, Nape’s direct materials inventory was P 50,000 more than it was at March 1,
2011.
20. Direct material purchases during the month of March
2011 amounted to:

a. P 0
b. P 250,000
c. P 300,000
d. P 350,000

Answer: D

Solution:

Direct materials, beginning P 300,000

Add: Direct materials, End 50,000
Direct Material Purchases P 350,000

21. Calculate the manufacturing overhead incurred for F&B Co.

Direct labor cost incurred P 250

Direct materials used 110
Beginning work in process 50
Ending work in process 300
Finished goods completed 170

a. P 60
b. P 410
c. P 560
d. P 580

Answer: A

Solution:

Direct labor cost incurred 250

Direct Materials Used 110
Factory Overhead 60 SQUEEZE
Total manufacturing cost 420
Add: Work in process, beg. 50
Cost of Goods put into process 470
Less: Work In Process, end 300
*Finished goods Completed 170

* Finished goods completed is equal to cost of goods manufactured.

22. Determine the sales for the year.

Gross profit P 280,000

Ending inventory 120,000
 Goods available for sale 180,000

a. P 300,000
b. P 340,000
c. P 400,000
d. P 460,000

Answer: B

Solution:

Goods Available for Sale P 180,000

Less: Inventory,end 120,000
Cost of Goods Sold 60,000
Add: Gross Profit 280,000
Sales 340,000

*Gross profit is attained by getting the difference between Sales and Cost of Goods
Sold. Using the SQUEEZE method we are able to get the number of sales by adding
COGS and Gross Profit.

Given the following information:

Finished goods beginning P 26,000

Finished goods ending 37,000
Cost of goods manufactured 127,000

23. What is the cost of goods sold?

a. P 115,500
b. P 138,500
c. P 153,000
d. P 190,500
e. P 116,000

Answer: E

Solution:

Cost of Goods Manufactured 127,000

Add: Finished Goods, beg. 26,000
Total Goods Available for Sale 153,000
Less: Finished Goods, end 37,000
Cost of Goods Sold 116,000

* The above solution is based on the Cost Goods Sold Statement formula.

Uniflo Manufacturing Company developed the following data for the current year.

Work in process inventory, January 1 P 40,000

Direct materials used 24,000
 Actual factory overhead 48,000
Applied factory overhead 36,000
Cost of goods manufactured 44,000
Total manufacturing costs 120,000

24. Uniflo Company’s direct labor cost for the year is

a. P 12,000
b. P 60,000
c. P 36,000
d. P 48,000

Answer: B

Solution:

Direct Materials used 24,000

Factory Overhead Applied 36,000
Direct Labor (60,000) SQUEEZE
Total Manufacturing Cost 120,000

*Factory overhead applied is used in determining the total manufacturing cost and
not the actual overhead.

25. Uniflo Company’s work in process inventory, December 31 is

a. P 116,000
b. P 80,000
c. P 76,000
d. P 36,000

Answer: A

Solution:

Total Manufacturing Cost 120,000

Work in process, beg 40,000
Cost of goods put into process 160,000
Less: Work in process, end 116,000 SQUEEZE
Cost of Goods Manufactured 44,000

The following data relate to Maxine Manufacturing Company for the period:

Direct labor P 2,400

Factory overhead 1,700
Work in process inventory, beginning 11,000
 Work in process inventory, end 5,000
Cost of goods manufactured 16,000
Sales 50,000
Finished goods inventory, beginning 9,000
Finished goods inventory, end 8,000
Total selling, general, and administrative costs 14,000

26. The amount of direct materials put into production during the period

a. P 6,700
b. P 5,600
c. P 4,800
d. P 5,900

Answer: D

Solution:

Direct materials 5,900 SQUEEZE

Direct Labor 2,400
Factory overhead 1,700
Total Manufacturing Cost 10,000
Work in process, beg 11,000
Cost of goods put into process 21,000
Less: Work in process, end 5,000
Cost of goods manufactured 16,000
Add: Finished goods, beg 9,000
Total goods available for sale 25.000
Less: Finished goods, end 8,000
Cost of goods sold 17,000

27. The amount of increase in retained earnings during the period

a. P 14,000
b. P 33,000
c. P 25,000
d. P 19,000

Answer: D

Solution:

Sales 50,000
Cost of Goods Sold (17,000)
Gross Profit 33,000
Total selling, general, and administrative costs (14,000)
 Net Income 19,000

* Net Income is the increase in the retained earnings.

Arizona Manufacturing Company reported the following year-end information

Work in process inventory, January 1 180,000

Raw materials inventory, January 1 50,000
Work in process inventory, December 31 150,000
Raw materials inventory, December 31 80,000
Raw materials purchased 160,000
Direct labor 150,000
Factory overhead applied 100,000
Factory overhead control 120,000

28. Cost of goods manufactured for the year is

a. P 380,000
b. P 410,000
c. P 350,000
d. P 440,000

Answer: B

Solution:

Materials Used:
Raw Materials, beg 50,000
Add: Purchases 160,000
Total Available for use 210,000
Less: Materials, end 80,000 130,000
Direct Labor 150,000
Factory Overhead Applied 100,000
Total Manufacturing Cost 380,000
Add: Work in process, beg. 180,000
Cost of goods put into process 560,000
Less: Work in process, end. 150,000
Cost of goods manufactured 410,000

* Used Cost of Goods Sold Statement to determine the value.

Alabama Corporation reported the following for the year. WP inventory, beg – P 90,000;
cost of goods manufactured – P 258,000; FG inventory, beg – P 126,000; WP inventory,
end – P 110,000; FG inventory, end – P 132,000

29. Cost of goods sold for Alabama Corporation during the year

a. P 252,000
b. P 264,000
c. P 232,000
 d. P 126,000

Answer: A

Solution:

Cost of goods manufactured 258,000

Add: Finished goods, beg. 126,000
Total goods available for sale 384,000
Less: Finished goods, end 132,000
Cost of goods sold 252,000

30. Total manufacturing costs for Alabama Corporation

a. P 278,000
b. P 368,000
c. P 298,000
d. P 238,000

Answer: A

Solution:

Cost of goods manufactured 258,000

Work in process, end 110,000
Less: Work in process, beg. 90,000
Total manufacturing cost 278,000

CHAPTER 6 ACCOUNTING FOR MATERIALS

True – False Questions

1. When price are rising, higher income will be reported using FIFO as compared with
using LIFO.

Answer: TRUE
2. Inventory Methods can be changed at will to control reported net income. (cost of
goods sold)

Answer: FALSE

3. An overstated ending inventory leads to understated net income. (understated);

(overstated)

Answer: FALSE

*When an ending inventory overstatement occurs, the cost of goods sold is stated
too low, which means that net income before taxes is overstated by the amount of the
inventory overstatement; vice versa.

4. An error in determining the cost of the ending inventory of a period generally results in
misstated net income for two periods.

Answer: TRUE

5. The net realizable value of an inventory item can never be greater than its expected
selling price

Answer: TRUE

6. An advantage of using lifo yields the greatest Cost of Goods Sold.

Answer: TRUE

7. Spoiled goods may be sold at an amount higher than the regular sales price. (lower)

Answer: FALSE

*Spoiled goods are goods that do not meet production standards and are either
sold for their salvage value or discarded. When spoiled units are discovered, they are
taken out of production and no further work is performed on them.

8. If spoilage in a job results is due to the exacting specifications of the job, the loss
resulting from the spoiled goods should be shared by all units manufactured during the
period. (the specific job)

Answer: FALSE

*If the reason for the spoilage is the job itself, because it requires exacting
specifications, or a difficult, intricate or complicated manufacturing process.

9. The closing entries necessary under the perpetual and periodic inventory systems do
not differ because all expenses and revenues must be close. (differ)

Answer: FALSE
 *Perpetual inventory systems record cost of goods sold and keep inventory at its
current balance throughout the year. Therefore, there is no need to do a year-end
inventory adjustment unless the perpetual records disagree with the inventory count. In
addition, a separate cost of goods sold calculation is unnecessary since cost of goods
sold is recorded whenever inventory is sold.

*The inventory account in a periodic inventory system keeps its beginning balance
until the end of period adjustment to the physical inventory count. Therefore, a separate
cost of goods sold calculation is necessary.

10. When a company changes from one inventory costing method to another, the
change must be fully disclosed in a footnote to the financial statements explaining the
reasons for the change.

Answer: TRUE

11. Graphically, the economic order quality (EOQ) is the point where the carrying cost
line intersect the ordering cost line.

Answer: TRUE

12. The primary goal of inventory management activity is to minimize the risks of a
stockout while maximizing the return on inventory. (inventory related costs)

Answer: FALSE

13. When computing the economic production run size, the costs to set up a production
run are analogous to carrying costs in the basic economic order quantity model.
(order costs)

Answer: FALSE

14. The purchase price per unit of inventory is irrelevant in lathe economic order
quantity (EOQ) model.

Answer: TRUE

15. The accounting for spoiled units and defective units is the same. (different)

Answer: FALSE

*When spoiled units are discovered, they are taken out of production and no
further work is performed on them. While defective units do not meet production
standards and must be processed further in order to be salable as good units or as
irregulars.

Multiple Choice - Problems

1 According to the net method, which of the following items should be included in the
cost of inventory?

Freight-cost Purchase discounts not taken

a. Yes No
b. Yes Yes
c. No Yes
d. No No

Answer: A

Explanation:

The cost of inventory should include all expenditures (direct and indirect)
incurred to bring an item to its existing condition and location. Freight
charges are thus appropriately included in inventory costs. Under the net purchase
method, purchase discounts not taken are recorded in a Purchase Discount Lost
Account. When this method is used, purchase discounts lost are considered a
financial expense and are thus excluded from the cost of inventory.

2 The weighted average for the year inventory cost flow method is applicable to which
of the following inventory system?

Periodic Perpetual
a. Yes Yes
b. Yes No
c. No Yes
d. No No

Answer: B

Explanation:
Weighted average for the year inventory cost flow method is applicable only
to periodic inventory system because in perpetual inventory system, moving average
method is the one being used.

3 During June, Delta Co. experienced scrap, normal spoilage, and abnormal spoilage in
its manufacturing process. The cost of units produced includes

a. Scrap, but not spoilage

b. Normal spoilage, but neither scrap nor abnormal spoilage
c. Scrap and normal spoilage, but not abnormal spoilage
d. None of the items mentioned

Answer: C

Explanation:
 The cost of units produced includes scrap and normal spoilage but does not
include abnormal spoilage. Abnormal spoilage is recognized as a loss when it is
discovered, therefore it is not included in the cost of units produced.

4 Marsh Company had 150 units of product on hand at January 1, costing P21.00 each.
Purchases of product A during the month of January were as follows:

Units Unit Cost

January 10 200 22.00
18 250 23.00
28 100 24.00

Physical count on January 31 shows 250 units of product A on hand. The cost of
inventory at January 31, under the FIFO method is:

a. P 5, 850
b. P 5, 550
c. P 5, 350
d. P 5, 250

Answer: A

Solution:
150 units x 23 (Unit Cost) = 3,450
100 units x 24 (Unit Cost) = 2,400
250 units 5,850

Explanation:
Under the Fifo method, remaining units are those purchased at the later
date. Thus the units on hand on January 31 are those remaining from January 18
and 28.

5 Harper Company’s Job 301 for the manufacture of 2,200 coats was completed during
August 2009 at the following unit costs:

Direct Materials P 20.00

Direct Labor 18.00
Factory Overhead (includes an allowance of P1.00 spoiled work) 18.00
56.00

Final inspection of Job 301 discloses 200 spoiled costs which were sold to a jobber for
P 6000. Assume that spoilage loss is charged to all production during August. What
would be the unit cost of the good units produced on Job 301?

a. P 53.00
b. P 55.00
c. P 56.00
d. P 58.00

Answer: C
 Explanation:

Under the method, loss charged to all production, the unit cost of the
completed units remains unchanged.

Solution/Entries:

Work in Process (56 x 2200) 123,200

Materials 44,000
Payroll 39,600
Factory Overhead 39,600

Spoiled Goods 6,000

Factory Overhead 5,200
Work in Process 11,200

Work in Process, Ending = 123,200-11,200 = 112,000

Unit Cost = 112,000/2,000 = P 56.00

6 Assume instead, that the spoilage loss is attributable to exacting specification of Job
301 and is charged to this specific job. What would be the unit cost of the good coats
produced on Job 301?

a. P 55.00
b. P 57.50
c. P 58.60
d. P 61.60

Answer: B

Solution/Entries:

Work in Process (55 x 2,200) 121,000

Materials 44,000
Payroll 39,600
Factory Overhead 37,400

Spoiled Goods 6,000

Work in Process 6,000

Work in Process= 121,000-6,000= 115,000

Unit Cost = 115,000/2,000 = P 57.50

Palmer Corporation is a manufacturing concern that uses a perpetual inventory system.

The following data on the material inventory account is provided for 2009.

Material balance P 275,000

 Other debits to the materials account during the year 825,000
Increase of ending over beginning inventory 55,000

7 How much is the cost of materials issued to production?

a. P 1,045,000
b. P 770.000
c. P 880,000
d. P 430,000

Answer: B

Solution:

Beginning Inventory P 275,000

Add: Purchases 825,000
Total materials available for production P 1,100,000
Less: Ending Inventory 330,000*
Cost of Materials issued to production P 770,000

* Ending Inventory
Material Balance P 275,000
Add: Increase of ending over beginning inventory 55,000
Ending Inventory P 330,000

Job 75 incurred the following costs for the manufacture of 200 units of motors:
Original cost accumulation

Direct materials P 13,200

Direct labor 16,000
Factory overhead (150% of direct labor) 24,000

Direct costs of reworked 10 units

Direct materials 2,000

Direct labor 3,200

The total rework costs were attributable to exacting specifications of Job 75 and the full
rework costs were charged to the specific job.

8 The cost of Job 75 was

a. P 316
b. P 266
c. P 280
d. P 292
 Answer: A

Explanation:

If the reason for the defect is the job itself, the additional costs incurred of
the reworked 10 units will be charged to all units in the job

Solution:

Work in Process 53,200

Materials 13,200
Payroll 16,000
Factory Overhead 24,000

Work in Process 10,000

Materials 2,000
Payroll 3,200
Factory Overhead 4,800

Finished Goods 63,200

Work in Process 63,200

Unit Cost = 63,200/200 = P 316

The following data on materials purchases and issues during the month of April were
reported:
April 1 Beginning balance 400 units at P6
5 Received 100 units at P7
11 Received 100 units at P8
13 Issued 400 units
15 Received 200 units at P6
22 Issued 250 units
27 Returned from factory 50 units
30 Received 300 units at P9

9 Assuming that the company used a perpetual inventory system, the total quantity and
cost of materials purchased for the month of April should be:

a. 700 units at P 5,800

b. 700 units at P 5,810
c. 700 units at P 5,400
d. 700 units at P 6,200
Answer: C

Solution:
No. of units Cost per unit Total Cost
April 5 Received 100 units x P7 700
11 Received 100 units x 8 800
15 Received 200 units x 6 1,200
 30 Received 300 units x 9 2,700
Cost of materials purchases 700 units 5,400

The Curacha Company uses 20,000 units of Material A in making a finished product. The
cost to place one order for Material A is P8.00 and the annual cost to carry one Material A
is P2.00

10 The economic order quantity for Material A is

a. 100 units
b. 400 units
c. 283 units
d. 565 units

Answer: B

Solution:

EOQ = 2(cost of placing an order)(number of units required annually)

carrying cost per unit of inventory

= 2(8)(20,000)/2

= 160,000

= 400 units

11 If the cost to place one order increased by P10 and the cost to carry one Material A in
stock remains the same, the economic order quantity will be

a. 600 units
b. 447 units
c. 425 units
d. 500 units

Answer: A

Solution:

EOQ = 2(18)(20,000)/2

= 600 units

One of the products that Justine Corporation sells is "Extra Soft" floor mats. Justine's
ordering costs related to the mat is P12.50 per order. The cost of carrying one mat in
inventory for one year is P16.00. Justine sells 40,000 of these mats evenly throughout
the year.
12 What is the economic order quantity of Justine Corporation?

a. 250 units
b. 350 units
c. 400 units
d. 500 units

Answer: A

Solution:

EOQ = 2(12.50) (40,000)/16.00

= 250 units

13 What are Justine's total ordering costs per year and total carrying costs per year at
the economic order quantity?

Ordering Cost Carrying Cost.

a. P 1,562.50 P 1,562.50
b. 1,562.50 2,560.50
c. 2,000.00 2,000.00
d. 2,000.00 4,000.00

Answer: C

Solution:

Ordering Cost= Number of units required annually x ordering cost per unit
OC
EOQ
= (40,000/250)*12.50
= 2,000

Carrying Cost = EOQ x carrying cost per unit CC

2
= (250/2)*16
= 2,000

One of the products that Ram Breakfast Foods manufactures is carrot juice. Ram
manufactures and sells 5000 cases of carrot juice evenly each year. Variable
manufacturing costs are P4.50 per case. It costs Ram P3.60 to setup a production run for
carrot juice. It also costs Ram P2.50 per case year to carry a case of carrot juice in
inventory.

14 What is Ram’s economic production run size?

a. 83 cases
b. 85 cases
c. 120 cases
 d. 150 cases

Answer: C

Solution:

Economic Production Run Size = 2 (Annual Demand) (Setup Cost) / Carrying

Cost
= 2(5000) (3.60) / 2.5
= 120

Euphorbia Company produces and sells a single item of product. Inventory at the
beginning of September was 400 units at P1.80 per unit. Further receipts and sales
during the month were as follows:
Units Cost per unit
September 8 Receipts 600 P2.10
20 Receipts 500 -?
25 Sales 1250 4.00

The inventory uses the FIFO method of stock valuation. Gross margin for September was
P2,500.

15 What was the cost per unit of the P500 received on September 20?

a P 1.04
b P 1.94
c P 2.00
d P 2.08

Answer: D

Solution:

Beginning 400 @ 1.80 = 720

Sept. 8 600 @ 2.10 = 1,260
Sept. 20 250 @ 2.08 = 520 (520/250 = 2.08)
Sales 1250 @ 4.00 = 2,500
The following information pertains to Material X used by Nikki Company

Annual usage in units 20,000

Working days per year 250
Safety stock in units 800
Normal lead time in working units 30

16 If units of Material X will be required evenly throughout the year, the reorder point is

a. 800
b. 1,600
c. 2,400
d. 3,200

Answer: D

Solution:

Reorder Point =

= 3200 units

The following information relates to PRTC Company

Units required per year 60,000

Cost of placing an order P 900
Carrying cost per unit per year P 1,200

17 Assuming that the units will be required evenly throughout the year, what is the EOQ?

a. 200
b. 300
c. 400
d. 450

Answer: B

Solution:
 EOQ =

= 300 units

During March, Mark Company incurred the following costs on Job 209 for the 200 motors

Original cost accumulation P 660

Direct materials 800
Direct labor 1,200
Factory overhead P2,660

Direct costs of reworking 10 units:

Direct materials P 100
Direct labor 160
P 260

Method A – The rework cost were attributable to the exacting specifications of Job 209,
and the full rework costs were charged to this specific job.

Method B – The defective units fall within the normal range and the rework is not related
to a specific job, or the rework is common to all the jobs.

18 The cost per finished unit of Job 209 using Method A is:

a. P 15.60
b. P 15.80
c. P 13.30
d. P 13.50

Answer: B

Solution:

FOH rate =

Factory Overhead = 160 x 1.5 = 240

Original cost accumulation

Direct Materials P 660
 Direct Labor 800
Factory overhead 1,200 P 2,660
Add: Direct costs or reworking 10 units:
Direct Materials 100
Direct Labor 160
Factory overhead 240 500
Total P 3,160
Divide by 200 motors
Cost per finished unit of Job 209 using Method A P 15.80

19 The cost per finished unit of Job 209 using Method B is:

a. P 13.30
b. P 15.80
c. P 15.30
d. P 13.60

Answer: A

Solution:
Original Cost P 2,660
Divide by 200 motors
Cost per finished unit of Job 209 using Method B P 13.30

Tools Company manufactures electric drills to the exacting specifications of various

customers. During February 2008, Job 403 for the production of 1,100 drills was
completed at the following cost per unit:

Direct materials P 100

Direct labor 80
Factory overhead 120
Total 300

Final inspection of Job 403 disclosed 50 defective units and 100 units of normal spoilage.
The defective drills were reworked at a total cost of P5,000 and the spoiled drills were
sold to a jobber for P15,000.

20 The unit cost of the good units produced on Job 403 was:

a. P 330
b. P 320
c. P 300
d. P 290

Answer: B

Solution/Entry:
 Work in Process 330,000
Materials 110,000
Payroll 88,000
Factory Overhead 132,000

Spoiled Goods 15,000

Work in Process 15,000

Work in Process 15,000

Materials, Payroll, FOH 15,000

Work in Process = 330,000 + 5,000 – 15,000

Unit Cost = 320,000/1,000 = P 320

The following information relates to Blueberry Company’s materials Y

Working days per year 240

Normal lead time in working days 20
Maximum lead time in working days 45

21 Assuming that the units of material Y will be required evenly throughout the year, the
safety stock and order point would be

Safety Stock Order Point

a 600 600
b 600 1,350
c 750 600
d 750 1,350

No answer, due to lack of information.

UFC Inc. manufactures 100,000 special bulbs for its transformer division. The bulbs will
be used evenly throughout the year. The setup cost every time a production run is made
is P800 and the cost to carry bulbs in inventory for the year is P4. UFC’s objective is to
produce the bulbs at the lowest cost possible.

22 Assuming that each production run will be for the same number of bulbs, how many
production runs should UFC make?
a. 10
b. 14
c. 16
d. 19

Answer: C

Solution:
 EOQ =

EOQ =

EOQ = 6,326 units

No. of production runs=

= 16

The following information is about a company’s inventory costs

Total cost to place one order P 50

Total cost to carry one unit P4
Economic order quantity 7,000 units

23 What is the company’s estimated annual usage?

a. 1,000,000 units
b. 1,960,000 units
c. 1,400,000 units
d. 2,000,000 units

Answer: B

Solution:

EOQ =
 R = 1,960,000 units

24 How many orders will be placed?

a. 143
b. 200
c. 280
d. 286

Answer: C

Solution:

No. of orders =

= 280

Norman buys baseball bats from a manufacturer at P10 each. Norman expects to sell
90,000 bats evenly over the next year. Norman’s cost of capital is 10 percent. The total
out-of-pocket cost to carry one bat in inventory is P0.50 and the cost of ordering bats is
P15 per order.

25 Suppose that Norman orders 3,000 bats at a time. What is the total annual inventory
cost?

a P 750
b P1,200
c P2,250
d P2,700

Answer: D

Solution:

Total annual inventory cost = 3,000 x 90%

= P 2,700

26 What is the economic quantity order?

a 1,342 units
b 1,643 units
c 2,324 units
d 3,000 units

Answer: C

Solution:
 EOQ =

= 2,324 units

27 How many times would Norman have to place an order in one year?

a 67 times
b 55 times
c 39 times
d 30 times

Answer: C

Solution:
Times of order =

= 39 times

28 Norman sells bats for 300 days in a year. The lead time on orders is 2 days. At what
point should Norman place the order?

a 900 units remaining in stock

b 600 units remaining in stock
c 300 units remaining in stock
d 0 units remaining in stock

Answer: B

Solution:

Order Point =

= 600 units
The Sundust Company manufactures 4,000 brooms evenly throughout the year. The
setup cost is P2.00 and using the EOQ approach. The optimum production run would be
200.

29 The cost of carrying one broom in inventory for one year is

a. 0.05
b. 0.10
c. 0.20
d. 0.40

Answer: D

Solution:

EOQ =

40,000 =

40,000 =

40,000X = 16,000

X = 0.40

During August of the current year, Job 067 for 2,000 handsaws was completed at the
following cost per unit:

Direct Materials P 5.00

Direct Labor 4.00
Factory Overhead (applied @ 150% of DLC) 6.00

Final inspection revealed 100 defective units which were reworked at a cost of P2.00 per
unit for direct labor plus overhead at the predetermined rate.

30 If the defect is due to internal failure. What is the total rework cost and to what
account should it be charged.

Rework Cost Account charged

a P 200 Work In Process

b P 200 Factory Overhead Control
c P 500 Work In Process
d P 500 Factory Overhead Control

Answer: D

Solution/Entry:

Factory Overhead Control 500

Payroll (2*100) 200
Factory overhead applied (200*150%) 300