Review Material in cost accounting

CHAPTER 3 COST ACCOUNTING CYCLE

Multiple Choice – Theories

1. Cost of goods sold isa. An expenseb. A period costc. Is an assetd. 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 goodsb. The cost of goods manufactured during the periodc. The sum of the aboved. None of the above

Answer: C

3. Which of the following would not be classified as manufacturing overhead?a. Indirect laborb. Direct materialsc. Insurance on factory buildingd. Indirect material

Answer: B

4. The wage of a timekeeper in the factory would be classified asa. prime costb. direct laborc. indirect labord. administrative expense

Answer: C

5. As current technology changes manufacturing processes, it is likely that directa. labor will increaseb. labor will decreasec. materials will increased. material will decrease

Answer: B

6. Sales commissions are classified as a. prime costsb. period costsc. product costsd. indirect labor

Answer: B

7. For inventoriable costs to become expenses under the matching principle,a. the must be finished and in stockb. the product must be expensed based on its percentage of completionc. the product to which they attach must be soldd. all accounts must be settled

Answer: C

8. A manufacturing company reports cost of goods manufactured asa. a current asset on the balance sheetb. an administrative expense on the income statementc. a component in the calculation of cost of goods soldd. a component of the raw materials inventory on the balance sheet

Answer: C

9. Costs of goods manufactured in a manufacturing company is analogous toa. Ending inventory in a merchandising companyb. Beginning inventory in a merchandising company c. Cost of goods available for sale in a merchandising companyd. 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 manufacturedd. 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. 419,000b. 429,000c. 434,000d. 436,000

Answer: B

Solution: Cost of Goods Manufactured P 340,000Finished Goods, Beginning 45,000Total Goods available for Sale 385,000Finished 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 15,000Decrease in finished goods inventory 35,000Raw materials purchased 430,000Direct labor payroll 200,000Factory 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 950,000b. P 965,000c. P 975,000d. P 995,000

Answer: A

Solution:

Items 3 through 5 are based on the following information pertaining to Glenn Company’s manufacturing operations.

Inventories 3/1/11 3/31/11Direct Materials P 36,000 P 30,000Work-in-process 18,000 12,000Finished goods 54,000 72,000

Additional Information for the month of March 2011Direct materials purchased P 84,000Direct labor payroll 60,000Direct labor rate per hour 7.50Factory overhead rate/direct labor hour

10.00

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

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

Answer: D

Solution:

Direct MaterialsDirect Mats. – Beg. 36,000Add: Purchases 84,000Less: Direct Mats. – End. (30,000

)90,000

Direct Labor 60,000Prime Cost 150,00

0

Direct MaterialsPurchases 430,00

0Less: Increase in raw materials

15,000 415,000

Direct Labor 200,000Factory Overhead 300,000Manufacturing Cost 915,000Add: Decrease in Finished Goods 35,000Cost of Goods Sold 950,00

0

4. For the month of March 2011, conversion cost was

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

Answer: B

Solution:

Direct Labor 60,000Factory Overhead (60,000/7.50)=8000*10

80,000

Conversion Cost 140,000

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

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

Answer: D

Solution:Direct Materials used

Direct Materials, 3/1/11 36,0

00

Add: Purchases 84,0

00 Total available for use 120,000 Less: Direct Materials, 3/31/11 30,000 90,000

Direct Labor 60,0

00

Factory Overhead 80,0

00

Total Manufacturing Costs 230,00

0

Add: Work in process, 3/1/11 18,00

0

Cost of Goods put into process248,00

0 Less: Work in process, 3/31/11 12,000

Cost of Goods manufactured236,00

0

Items 6 and 7 are based on the following data of Matatag Company for the month of March 2011.

March 1 March 31Materials 40,000 50,000Work in Process 25,000 35,000Finished Goods 60,000 70,000

March 1 to 31, 2011Direct Labor Cost 120,000FOH-Applied 108,000Cost of Goods Sold 378,000

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

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

Answer: C

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

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

Answer: B

Solution:Direct materials used

Materials, Beg. 40,000Purchases (SQUEEZE) No. 6 180,00

0Less: Materials, End. (50,000

)170,000

Direct Labor 120,000Factory Overhead 108,000Manufacturing Costs 398,000Add: Work in process, Beg. 25,000Cost of goods put into process 423,000Less: Work in process, End (35,000

)Cost of goods manufactured (SQUEEZE) No. 7

388,000

Add: Finished goods, Beg. 60,000Goods Available for Sale 448,000Less: 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 100,000Direct labor 150,000Factory overhead (40% variable) 75,000Selling and administrative expenses

(50% direct, 60% variable) 120,000

8. Prime cost was:

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

Answer: B

Solution:

Direct materials P 100,000Direct labor P 150,000Prime cost P 250,000

9. Conversion cost was:

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

Answer: B

Solution:

Direct labor P 150,000Factory overhead P 75,000Conversion cost P 225,000

10. Direct cost was:

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

Answer: C

Solution:

Direct Selling and administrative Expense(P 120,000 x 50%) P 60,000

Direct materials 100,000Direct labor 150,000Direct cost P 310,000

11. Indirect cost was:

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

Answer: B

Solution:Indirect Selling and Administrative Expense

(P 120,000 x 50%) P 60,000Factory overhead 75,000Indirect cost P 135,000

12. Product cost was:

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

Answer: C

Solution:

Direct materials P 100,000Direct labor 150,000Factory overhead 75,000Product cost P 325,000

13. Variable cost was:

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

Answer: C

Solution:

Variable Selling and Administrative Expense (P 120,000 x 60%) P 72,000

Direct materials 100,000Direct labor 150,000

Variable factory overhead (P 75,000 x 40%) 30,000Variable 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 585,000b. P 600,000c. P 610,000d. P 625,000

Answer: D

Solution:

Manufacturing costs P 600,000Add: Finished goods, beginning 25,000Goods 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 10,000b. P 20,000c. P 110,000d. P 25,000

Answer: B

Solution:

Direct Materials30,000

Direct Labor 40,000Factory Overhead 20,000Manufacturing Costs 90,000Add: Work in process, Beg. (SQUEEZE)

20,000

Cost of goods put into process 110,000Less: Work in process, End. 15,000Cost of Goods Manufactured 95,000

The Lion Company’s cost of goods manufactured was P 120,000 when it sales were P 360,000 and its gross margin was P 220,000.

16. If the ending inventory of finished goods was P 30,000, the beginning inventory of finished goods must have been:

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

Answer: B

Solution:

The gross margin for Cruise 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 300,000b. P 350,000c. P 230,000d. P 375,000

Answer: B

Solution:

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

Sales 360,000

Cost of Goods SoldCost of goods manufactured 120,00

0Add: Finished goods, beg. (SQUEEZE)

50,000

Goods available for sale 170,00Less: Finished goods, end. 30,000 140,00

0Gross Margin 220,00

0

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

Answer: B

Solution:

Manufacturing Costs P 85,000Less: 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 435,000b. P 445,000c. P 465,000d. P 475,000

Answer: B

Solution:

Direct materials P 100,000Direct labor 150,000Factory overhead 200,000Total Manufacturing Costs 450,000Work in process (increase) (15,000)Cost of goods Manufactured 435,000Finished Goods (decrease) 10,000Cost 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 0b. P 250,000c. P 300,000d. P 350,000

Answer: D

Solution:

Direct materials, beginning P 300,000Add: Direct materials, End 50,000Direct Material Purchases P 350,000

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

Direct labor cost incurred P 250Direct materials used 110Beginning work in process 50Ending work in process 300Finished goods completed 170

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

Answer: A

Solution:

Direct labor cost incurred 250Direct Materials Used 110Factory Overhead 60 SQUEEZETotal manufacturing cost 420Add: Work in process, beg. 50Cost of Goods put into process 470Less: 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 280,000Ending inventory 120,000Goods available for sale 180,000

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

Answer: B

Solution:

Goods Available for Sale P 180,000Less: Inventory,end 120,000Cost of Goods Sold 60,000Add: Gross Profit 280,000Sales 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 26,000Finished goods ending 37,000Cost of goods manufactured 127,000

23. What is the cost of goods sold?

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

Answer: E

Solution:

Cost of Goods Manufactured 127,000Add: Finished Goods, beg. 26,000Total Goods Available for Sale 153,000Less: Finished Goods, end 37,000Cost 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 40,000Direct materials used 24,000Actual factory overhead 48,000Applied factory overhead 36,000Cost of goods manufactured 44,000Total manufacturing costs 120,000

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

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

Answer: B

Solution:

Direct Materials used 24,000Factory Overhead Applied 36,000Direct Labor (60,000) SQUEEZETotal 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 116,000b. P 80,000c. P 76,000d. P 36,000

Answer: A

Solution:

Total Manufacturing Cost 120,000Work in process, beg 40,000Cost of goods put into process 160,000Less: Work in process, end 116,000 SQUEEZECost of Goods Manufactured 44,000

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

Direct labor P 2,400Factory overhead 1,700Work in process inventory, beginning 11,000Work in process inventory, end 5,000Cost of goods manufactured 16,000Sales 50,000Finished goods inventory, beginning 9,000Finished goods inventory, end 8,000Total selling, general, and administrative costs 14,000

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

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

Answer: D

Solution:

Direct materials 5,900 SQUEEZEDirect Labor 2,400Factory overhead 1,700Total Manufacturing Cost 10,000Work in process, beg 11,000Cost of goods put into process 21,000Less: Work in process, end 5,000Cost of goods manufactured 16,000Add: Finished goods, beg 9,000Total goods available for sale 25.000Less: Finished goods, end 8,000Cost of goods sold 17,000

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

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

Answer: D

Solution:

Sales 50,000Cost of Goods Sold (17,000)Gross Profit 33,000Total 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 1 180,000Raw materials inventory, January 1 50,000Work in process inventory, December 31 150,000Raw materials inventory, December 31 80,000Raw materials purchased 160,000Direct labor 150,000Factory overhead applied 100,000Factory overhead control 120,000

28. Cost of goods manufactured for the year is

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

Answer: B

Solution:

Materials Used:Raw Materials, beg 50,000Add: Purchases 160,000Total Available for use 210,000Less: Materials, end 80,000 130,000

Direct Labor 150,000Factory Overhead Applied 100,000Total Manufacturing Cost 380,000Add: Work in process, beg. 180,000Cost of goods put into process 560,000Less: Work in process, end. 150,000Cost 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 252,000b. P 264,000c. P 232,000d. P 126,000

Answer: A

Solution:

Cost of goods manufactured 258,000Add: Finished goods, beg. 126,000Total goods available for sale 384,000Less: Finished goods, end 132,000Cost of goods sold 252,000

30. Total manufacturing costs for Alabama Corporation

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

Answer: A

Solution:

Cost of goods manufactured 258,000 Work in process, end 110,000Less: Work in process, beg. 90,000Total 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 takena. Yes Nob. Yes Yesc. No Yesd. 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 Perpetuala. Yes Yesb. Yes Noc. No Yesd. 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 includesa. Scrap, but not spoilageb. Normal spoilage, but neither scrap nor abnormal spoilagec. Scrap and normal spoilage, but not abnormal spoilaged. 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 CostJanuary 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, 850b. P 5, 550c. P 5, 350d. 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 20.00Direct Labor 18.00Factory 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 53.00b. P 55.00c. P 56.00d. 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) 123,200Materials 44,000Payroll 39,600Factory Overhead 39,600

Spoiled Goods 6,000Factory Overhead 5,200

Work in Process 11,200

Work in Process, Ending = 123,200-11,200 = 112,000Unit 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 55.00b. P 57.50c. P 58.60d. P 61.60

Answer: B

Solution/Entries:

Work in Process (55 x 2,200) 121,000Materials 44,000Payroll 39,600Factory Overhead 37,400

Spoiled Goods 6,000Work in Process 6,000

Work in Process= 121,000-6,000= 115,000Unit 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 825,000Increase 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 275,000Add: Purchases 825,000Total materials available for production P 1,100,000Less: Ending Inventory 330,000*Cost of Materials issued to production P 770,000

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

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

Direct materials P 13,200Direct labor 16,000Factory overhead (150% of direct labor) 24,000

Direct costs of reworked 10 units

Direct materials 2,000Direct 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 53,200Materials 13,200Payroll 16,000Factory Overhead 24,000

Work in Process 10,000Materials 2,000Payroll 3,200Factory Overhead 4,800

Finished Goods 63,200Work 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 P711 Received 100 units at P8

13 Issued 400 units15 Received 200 units at P622 Issued 250 units27 Returned from factory 50 units30 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 5,800b. 700 units at P 5,810c. 700 units at P 5,400 d. 700 units at P 6,200Answer: 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 2,700Cost 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 unitsb. 400 unitsc. 283 unitsd. 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 unitsb. 447 unitsc. 425 unitsd. 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 unitsb. 350 unitsc. 400 unitsd. 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 1,562.50b. 1,562.50 2,560.50c. 2,000.00 2,000.00d. 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 casesb. 85 casesc. 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 unitSeptember 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 1.04b. P 1.94c. P 2.00d. P 2.08

Answer: D

Solution:

Beginning 400 @ 1.80 = 720Sept. 8 600 @ 2.10 = 1,260Sept. 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 20,000Working days per year 250Safety stock in units 800Normal lead time in working units 30

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

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

Answer: D

Solution:

Reorder Point =

=

= 3200 units

The following information relates to PRTC Company

Units required per year 60,000Cost 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. 200b. 300c. 400d. 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 660Direct materials 800Direct labor 1,200Factory overhead P2,660

Direct costs of reworking 10 units:Direct materials P 100Direct 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 15.60b. P 15.80c. P 13.30d. P 13.50

Answer: B

Solution:

FOH rate =

Factory Overhead = 160 x 1.5 = 240

Original cost accumulationDirect Materials P 660Direct Labor 800Factory overhead 1,200 P 2,660

Add: Direct costs or reworking 10 units:Direct Materials 100Direct Labor 160Factory overhead 240 500

Total P 3,160Divide 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 13.30b. P 15.80c. P 15.30d. P 13.60

Answer: A

Solution:Original Cost P 2,660Divide by 200 motorsCost 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 100Direct labor 80Factory overhead 120Total 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 330b. P 320c. P 300d. P 290

Answer: B

Solution/Entry:

Work in Process 330,000Materials 110,000Payroll 88,000Factory Overhead 132,000

Spoiled Goods 15,000Work in Process 15,000

Work in Process 15,000Materials, 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 240Normal lead time in working days 20Maximum 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 600b. 600 1,350c. 750 600d. 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. 10b. 14c. 16d. 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 50Total cost to carry one unit P 4Economic order quantity 7,000 units

23. What is the company’s estimated annual usage?

a. 1,000,000 unitsb. 1,960,000 unitsc. 1,400,000 unitsd. 2,000,000 units

Answer: B

Solution:

EOQ =

R = 1,960,000 units

24. How many orders will be placed?

a. 143b. 200c. 280d. 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 750b. P1,200c. P2,250d. 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 unitsb. 1,643 unitsc. 2,324 unitsd. 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 timesb. 55 timesc. 39 timesd. 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 stockb. 600 units remaining in stockc. 300 units remaining in stockd. 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. 0.05b. 0.10c. 0.20d. 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 5.00Direct Labor 4.00Factory 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 Processb. P 200 Factory Overhead Controlc. P 500 Work In Processd. P 500 Factory Overhead Control

Answer: D

Solution/Entry:

Factory Overhead Control 500Payroll (2*100) 200Factory overhead applied (200*150%) 300