Chapter 13
Job Order Costing Job order costing is a procedure of accumulating the three elements of cost, materials, labor, and overhead by job order. Job order costing problems often appear in the CPA examination. The discussion on this this shall be limited to the basic review of the the flow of cost under a job job order costing. Candidates should have sound knowledge on the following types of problems involving job order costing: 1. Job order order cos costin ting g proc procedu edures res.. 2. Preparatio Preparation n of Statemen Statementt of Cost of Goods Goods Manufact Manufactured ured and Sold. 3. Accountin Accounting g for for spoiled spoiled units and rework rework costs. costs. 4. Allocat Allocation ion of of service service depa departm rtment ent costs costs.. JOB ORDER COSTING PROCEDURES
Job order costing procedures may be summarized as follows: 1. Job order order costing costing applie applied d to cost as follow followss a. Direct Direct materials materials and and direct direct labor labor costs costs are traced traced to a particula particularr job. job. b. Cost not directly directly tracea traceable ble (overhead (overhead)) are applied applied to individua individuall job using a predetermined overhead application rate. 2. The overhead overhead rate rate is a predetermi predetermined ned yearly yearly rate using using as base, base, labor labor hours, hours, machine hours, or labor cost. 3. Practical Practically, ly, the differenc difference e between overhea overhead d applied applied and actual actual overhead overhead is closed to cost of goods sold at the end of period. PREPARATION OF STATEMENT OF COST OF GOODS MANUFACTURED
Statement of Cost of Goods Manufactured refers to the cost of the jobs completed whether they were started before or during the current accounting period. In the preparation of the statement, candidate should know the presentation of the following cost elements: 1. Direct materials. These are materials materials which become become an integral part of the finished finished product. 2. Direct labor. This represents the labor which acts directly on the product and physically transforms the product by machine.
3. Manufacturing overhead. This consists of all product costs other than direct materials and and direct labor labor costs. costs. 4. Prime cost. This is the sum of direct materials and direct labor costs. 5. Conversion cost. This is the sum of direct labor cost and manufacturing overhead. 6. Manufacturing cost. This is the sum of direct materials, direct labor and manufacturing overhead costs. 7. Under-applied or over-applied manufacturing overhead. This is the difference between the actual overhead incurred and the applied (estimated) overhead. The usual format format of the statement statement presented below: below: Direct material used: Beginning inventory, January 1 Purchases Cost of material available for use Ending inventory, December 31 Direct labor Applied manufacturing overhead Manufacturing costs Add beginning work in progress, January 1 Cost of goods placed in process Less ending work in process, December 31 Cost of goods manufactured
xx xx xx xx
xx xx xx xx xx xx xx xx
The Cost of Goods Sold in in a manufacturing manufacturing company is usually usually computed as: as: Beginning finished goods inventory Cost of goods manufactured Cost of goods available for sale Less ending finished goods inventory Cost of goods sold at normal costing Under-applied (over-applied) overhead Cost of goods sold at actual costing costing
xx xx xx xx xx xx xx
ALLOCATION OF SERVICE (SUPPORT) DEPARTMENT COSTS
Service departments benefit the manufacture manufacture of products even though they are are not directly involved in converting raw raw materials into finished finished goods. For this reason, service service department costs must be reallocated to producing departments, both in computing predetermined overhead rates and in measuring actual overhead costs of producing deparments.
3. Manufacturing overhead. This consists of all product costs other than direct materials and and direct labor labor costs. costs. 4. Prime cost. This is the sum of direct materials and direct labor costs. 5. Conversion cost. This is the sum of direct labor cost and manufacturing overhead. 6. Manufacturing cost. This is the sum of direct materials, direct labor and manufacturing overhead costs. 7. Under-applied or over-applied manufacturing overhead. This is the difference between the actual overhead incurred and the applied (estimated) overhead. The usual format format of the statement statement presented below: below: Direct material used: Beginning inventory, January 1 Purchases Cost of material available for use Ending inventory, December 31 Direct labor Applied manufacturing overhead Manufacturing costs Add beginning work in progress, January 1 Cost of goods placed in process Less ending work in process, December 31 Cost of goods manufactured
xx xx xx xx
xx xx xx xx xx xx xx xx
The Cost of Goods Sold in in a manufacturing manufacturing company is usually usually computed as: as: Beginning finished goods inventory Cost of goods manufactured Cost of goods available for sale Less ending finished goods inventory Cost of goods sold at normal costing Under-applied (over-applied) overhead Cost of goods sold at actual costing costing
xx xx xx xx xx xx xx
ALLOCATION OF SERVICE (SUPPORT) DEPARTMENT COSTS
Service departments benefit the manufacture manufacture of products even though they are are not directly involved in converting raw raw materials into finished finished goods. For this reason, service service department costs must be reallocated to producing departments, both in computing predetermined overhead rates and in measuring actual overhead costs of producing deparments.
Candidates should remember the following methods of service cost allocation: 1. Direct method. Under this method, the cost of each service department is allocated directly to producing departments. 2. Step-down method. This method involves allocation of service department costs to both service and producing producing department. department. Costs of the most most widely used service department or the department with the highest total cost are first allocated to all other departments. The costs of the next most widely-used service department are then allocated. These costs will include those previously allocated from the first department. These steps continue until all service department costs have been allocated. Once a service department costs have been allocated, no further allocation are made to it from other departments. 3. Reciprocal method. This method allocates costs by explicitly including the mutual services provided among all service departments. For example, the Service Department 1 maintains all the computer equipment in Service Department 2. Similarly, Similarly, Service Service Departm Department ent 2 also also provides provides databa database se suppor supportt for Departmen Departmentt 1. The reciprocal allocation method fully incorporates interdepartmental relationships into the service department cost allocation. ACCOUNTING FOR SPOILAGE AND REWORK SPOILAGE
These are units that do not meet production standards. Spoilage may be normal or abnormal. Costs of abnormal spoilage are not considered to be inventoriable costs and are written off as costs of the period during which the abnormal spoilage is detected. Normal spoilage costs are inventoriable costs. costs. When assigning assigning costs, job-costing system system generally generally distinguish normal spoilage attributable to a specific job from normal spoilage common to all jobs. To illustrate the accounting for spoilage in job order costing, assume the following example. In the Iraq Machine Shop, 5 units out of of job lot of 50 units are spoiled. Costs assigned prior to the inspection point are P2,000 per unit. Our presentation here focuses on how the P2,000 cost per unit is accounted for. When the spoilage is i s detected, the spoiled goods are inventoried at P600 per unit, the net disposal value. Normal spoilage attributable to a specific job. When normal spoilage occurs because of customer’s specification of a particular job, that job bears the cost of spoilage reduced by the disposal value of the spoilage. The journal entry to recognize disposal value is: Materials or spoiled goods inventory (5 units x P600/unit)
3 ,0 0 0
Work in process (specific job)
3 ,0 0 0
Note: the Work in Process account has already been debited (charged) P10,000 for the spoiled units (5 x P2,000). The effect of the P3,000 entry is to make the net cost of normal spoilage, P7,000 P7,000 (10,000 (10,000 – 3,000), 3,000), an additi additional onal cost of the 45 (50 (50 - 5) good good units units produc produced. ed. The The total total cost of the 45 good units is P97,000, comprising P90,000 (45 units x P2,000) incurred to produce the good units plus the P7,000 net cost of abnormal spoilage. The cost per good units is P2,155.56 (P97,000 / 45 good units). Normal spoilage common to all jobs. In some cases, spoilage may be due to internal failure. The spoilage inherent in production will, of course, occur when a specific job is worked on. But the spoilage is not attributable to, and hence, is not charged to the specific job. Instead, the spoilage is costed as manufacturing overhead. The journal entry is: Materi Mate ria als or sp spoiled iled goods ods in inven ventory tory (5 un units its x P600) 00) Manufacturing overhead ead co control (P10,000 – P3,000) Work in Process (5 units x P2,000)
3,00 3,000 0 7 ,0 0 0 1 0 ,0 0 0
Abnormal spoilage. If the spoilage is abnormal, the net loss is charged to an abnormal loss account. Unlike normal spoilage costs, abnormal spoilage costs are not included as part of the cost of good units produce. The total cost of the 45 units is P90,000 (45 units x P2,000). The cost per good unit unit is P2,000 (P90,000 / 45 good units). units). The entry entry is: Materials (5 units x P600) Loss from abnormal sp spoilage (P (P10,000 – P3,000) Work in Process (5 units x P2,000)
3 ,0 0 0 7 ,0 0 0 1 0 ,0 0 0
REWORK
Rework is units of production that are inspected, determined to be unacceptable, repaired, and sold as acceptable finished goods. We again distinguish (1) normal rework attributable to a specific job, (2) normal rework common to all jobs, and (3) abnormal rework. To illustrate, consider the Iraq Machine Machine Shop data. Assume Assume the five spoiled units are reworked. reworked. The journal entry for the P10,000 of total costs (the details of these costs are assumed) assigned to the five spoiled before considering rework costs is: Work in Process (specific job) Materials Wages payable Applied manufacturing manufacturing overhead
1 0 ,0 0 0 4 ,0 0 0 4 ,0 0 0 2,000
Assume the rework costs equal P3,800 (compose of P800 direct materials, P2,000 direct labor, and P1,000 manufacturing overhead). Normal rework attributable to a specific job. If the rework is normal but occurs because of customer’s specification in the specific job, the rework costs are charged to that job. The journal entry is: Work in Process (specific job) Materials Wages payable Applied manufacturing overhead
3,800 800 2,000 1,000
Normal rework common to all jobs. When rework is normal and not attributable to a specific job, the costs of rework are charged to manufacturing overhead and spread, through overhead allocation, over all jobs. The journal entry is: Manufacturing overhead control Materials Wages payable Applied manufacturing overhead
3,800 800 2,000 1,000
Abnormal rework. If the rework is abnormal, it is recorded by charging abnormal network to a loss account. The journal entry is: Loss from Abnormal Rework Materials Materials Applied manufacturing overhead
3,800 800 2,000 1,000
PROBLEMS 1. Maganda Company manufactures pipes and uses a job order costing system. During May,
the following jobs were started (no other jobs were in process) and the following costs were incurred: Job X Job Y Job Z Total Materials P10,000 P20,000 P15,000 P45,000 Direct labor 5,000 4,000 2,500 11,500 P15,000 P24,000 P17,500 P56,500 In addition, estimated overhead of P300,000 and direct labor costs of P150,000 were estimated to be incurred during the year. Actual overhead of P24,000 was incurred in May; overhead is applied on the basis of direct labor costs. If only Job X and Job Z were completed during the month, the journal entry to record the initiation of all jobs would be: a. Work-in-process
P79,500
Material
P45,000
Wages payable
11,500
Applied factory overhead
23,000
b. Work-in-process
80,500
Direct materials
45,000
Direct labor
11,500
Factory overhead
24,000
c. Work-in-process
80,500
Direct materials
45,000
Direct labor
11,500
Applied factory overhead
24,000
d. Direct labor Direct materials
11,500
45,000
Work-in-process
56,500
2. Malakas Company is a manufacturing concern using the perpetual inventory system. The
following materials inventory account data is provided: Beginning balance Other debts to the account Excess of ending inventory over beginning inventory How much is the cost of materials issued to production? a. P770,000 b. 1,045,000 c. 1,100,000
P275,000 835,000 55,000
d. 1,155,000 3. The books of Chico Manufacturing Co. showed the following data for the month of October
2013: Opening and closing inventories: Oct. 1 P16,000 16,000 28,000
Raw materials Work in Process Finished goods Direct labor cost, P32,000
Oct. 31 P17,200 24,000 36,000
Factory Overhead, 75% of direct labor cost Cost of goods sold, P112,500 What is the cost of materials purchased during the month? a. P87,200 b. 73,200 c. 72,000 d. 71,200 4. Durian Company has the following data in April 30, 2013:
April manufacturing overhead P30,101.80 Decrease in ending inventories: Materials 2,430 Goods in Process 590 Increase in ending inventory: Finished goods 1,320.40 The manufacturing overhead amounts to 50% of the direct labor, and the direct labor and manufacturing combined equal 50% of the total cost manufacturing. All materials are purchased F.O.B. shipping point. What is the cost of goods manufactured? a. P180,610.80 b. 181,200.80 c. 182,300.00 d. 183,200.80 5. Mangga, Inc. employs a job order cost system, Its manufacturing activities in July, 2013, its
first month of operation, are summarized as follows: 201
JOB NUMBERS 202 203
204
Direct materials P7,000 P5,800 P11,600 P5,000 Direct labor cost 6,600 6,000 8,400 2,400 Direct labor hours 1,100 1,000 1,400 400 Units produced 200 100 1,000 300 Manufacturing overhead is applied at a rate of P2 per direct labor hour to variable overhead, P3 per hour for fixed overhead. Jobs 201, 202 and 203 were completed in July. What is the cost of the completed jobs? a. P62,900 b. 62,500 c. 72,900 d. 65,900 6. The Atis Corporation manufactures one product and accounts for cost by a job order
system. You have obtained the following information for the year ended December 31, 2013 from the corporation's books and records: Total manufacturing cost added during 2013 based on P1,000,000 actual direct materials, actual direct labor and applied factory overhead on actual direct labor cost Cost of goods manufactured based on actual direct 970,000 materials and direct labor and applied factory overhead Applied factory overhead to work in process based on 75% direct labor cost Applied factory overhead for the year, based on total 27% manufacturing cost Beginning work in process inventory was 80% of ending work in process inventory. What is the cost of direct materials used for year ended December 31, 2013? a. P370,000 b. 970,000 c. 990,000 d. 970,500 7. The Papaya Company uses a job order cost system. The following data were obtained from
the company's cost records as of June 30. No jobs were in process at the beginning of June, all costs listed being incurred during the month. Job Order No. 1001
Direct Materials P4,320
Direct Labor Hours 1,300
Direct Labor Cost P1,600
1002 1003 1004 1005 1006
9,150 11,275 3,225 6,500 2,750
3,700 8,200 1,500 3,200 980
7,250 14,325 2,800 6,100 1,650
Manufacturing overhead costs are charged to jobs on the basis of P1.50 per direct labor hour. The actual manufacturing overhead cost for the month totalled P30,350. During June, Job Order Nos. 1001, 1002, 1004 and 1005 were completed. Jobs 1001 and 1002 were shipped out and the customers were billed P9,000 for Job 1001 and P20,000 for Job 1002. The cost of goods manufactured would be: a. P55,500 b. 55,495 c. 56,495 d. 57,500 8. The Apple Manufacturing Company manufactures a product exclusively to customer orded,
employing a job order cost system. On August 1, 2013, its work in process inventory (5 partially completed jobs) had a cost of P3,000. During August, no additional orders were put into production and 18 orders were completed (total cost, P24,000) of which 14 (cost P20,000) were shipped. Material requisition in August totalled P17,000 and direct labor cost were P8,000 at the beginning of the year, 2013, a predetermined overhead rate of 150% of expected direct labor cots was established. The August 31, 2013 work in process inventory is: a. P4,000 b. 14,000 c. 16,000 d. 20,000 9. Job No, 210 has, at the end of the second week in February, an accumulated total cost of
P4,200. In the third week, P1,000 of direct materials were used on the Job, together with P10 of indirect materials.
Twenty (20) hours of direct labor services were applied to the job at a cost of P5 per hour. Manufacturing overhead was applied at the basis of P2.50 per direct labor hour for fixed overhead and P2 per hour variable overhead. Job No. 210 was the only job completed during the third week. The total cost of Job Order No. 210 is: a. P5,390 b. 5,360 c. 5,350 d. 5,400 10. Peanuts Corporation uses a job-order cost system and has two production departments, M
and A, budgeted manufacturing costs for 2013 are as follows: Department Department M A Direct materials P700,000 P100,000 Direct labor 200,000 800,000 Manufacturing overhead 600,000 400,000 The actual material and labor costs charged to Job No. 432 during 2013 were as follows: Direct material P25,000 Direct labor: Department M P8,000 Department A 12,000 20,000 Peanuts Corporation applies manufacturing overhead to production orders on the basis of direct-labor cost using departmental rates predetermined at the beginning of the year based on the annual budget. The total manufacturing cost associated with Job No. 432 for 2013 should be: a. P50,000 b. 55,000 c. 65,000 d. 75,000 11. Banana Corporation has a job order cost system. The following debits (credits) appeared in
the ledger account work in process for the month of March, 2013: March 1, 31, 31, 31, 31,
Balance Direct materials Direct labor Factory overhead To finished goods
P12,000 40,000 30,000 27,000 (100,000)
Banana applied overhead to production at a predetermined rate at 90% based on the direct labor cost. Job No.232, the only job still in process at the end of March, 2013, has been charged with factory overhead of P2,250. What was the amount of direct materials charged to Jon No.232> a. P2,250 b. P2,500 c. P4,250 d. P9,000 12. The work-in-process account of the Matamis Company which uses a job order cost system
follows: Work-In-Process April 1 Balance
P25,000
Direct Materials
50,000
Direct labor
40,000
Fac. Overhead Applied
30,000
Finished Goods
P125,450
a. P8,700 b. P7,600 c. P4,500 d. P4,200 13. The following data were taken from the records of Sampaloc Company:
08/31/2013
09/30/2013
P
?
P50,000
Work in process
80,000
95,000
Finished goods
60,000
78,000
Inventories: Raw Materials
Raw materials purchases, P46,000 Factory overhead, 75% of direct labor cost, P63,000 Selling and administrative expenses, 12.5% of sales, P25,000 Net income for September,2013 P25,000 What is the cost of raw materials inventory on August 31,2013? a. P30,000 b. P40,000 c. P46,000 d. P50,000
14. Macopa Corporation manufactures rattan furnitures sets for export and uses the job order
cost system in accounting for its costs. You obtained from the corporation’s books and records the following information for the year ended December 31,2013: -
The work in process inventory on January 1 was 20% less than the work in process inventory on December 31.
-
The total manufacturing cost added during 2013 was P900,000 based on actual direct materials and direct labor but with manufacturing overhead applied on actual direct labor pesos.
-
The manufacturing overhead applied to process was 72% of the direct labor pesos, and it was equal to 25% of the total manufacturing costs.
-
The cost of goods manufactured, also based on actual direct labor and applied manufacturing overhead, was P850,000.
The cost of direct materials used and the work in process i nventory on December 31, 2011 are: Direct materials used
WIP Inventory, 12/31/2013
a. P1,075,000
P200,000
b. P362,500
P250,000
c. P312,500
P250,000
d. P1,100,000
P275,000
15. The Narra Company uses a job order cost accounting system. Overhead is applied to
production at a predetermined rate based on direct labor cost. The following posting appears in the ledger accounts of the company for the month of September 2013: Debit Work in Process, September 1
P30,000
Direct materials
60,000
Factory overhead
40,000
Direct labor
50,000
On September 30,2013, finished goods completed, from work in process cost P160,000. Job No. 327 was the only job not completed in September, and it has been charged P4,600 for factory overhead. Direct materials charged to Job No. 327 was: a. P10,350 b. P14,650 c. P9,650 d. P25,000
16. Pears Factory uses a job order cost system. Per company records, the total charges to work-
in-process in March 2013 were as follows: Direct materials Direct labor Overhead- 75% of direct labor cost
P125,000 122,000
No jobs were in process at the beginning of the month. During the month, work in process in the amount of P310,500 was charged to finished goods. On March31,2012, the only job order remaining was Job No., 100 with a direct labor cost of P10,000. The cost of direct materials charged to Job No. 100 was: a. P20,500 b. P14,875 c. P10,500 d. P15,000 17. The factory ledger of the Malave Co. contains the following account:
Materials Labor Overhead
Goods in Process P40,000 Finished Goods 100,000 80,000
P120,000
The amount of materials charged to the uncompleted job was P28,000. The amounts of labor and overhead charges for the uncompleted job are:
a. b. c. d.
Labor P40,000 P32,000 P72,000 P40,000
Overhead P32,000 P40,000 P40,000 P72,000
18. Santol Company had the following inventories:
Direct materials Work in process Finished goods The following information were available for April 2013: Direct labor
April 1 P36,000 18,000 54,000
April 30 P45,000 26,000 72,000
P60,000
Direct labor rate per hour Overhead rate per direct labor hour Cost of goods manufactured
P 7.50 10.00 153,650
What is the prime cost during April 2013? a. P81,650 b. P80,000 c. P90,000 d. P96,000 19. Kasoy Company has underapplied overhead of P45,000 for the year ended December
31,2013. Before disposition of the underapplied overhead, selected December 31,2013 balances from Worley’s accounting records are as follows: Sales Cost of goods sold Inventories: Direct materials Work in process Finished goods
P1,200,000 720,000 36,000 54,000 90,000
Under Worley’s cost accounting system , over or underapplied overhead is allocated to appropriate inventories and cost of goods sold based on year end balances. In his 2013 statement of comprehensive income, kasoy should report cost of goods sold of: a. P682,500 b. P684,000 c. P756,000 d. P757,500 20. Orange Company uses a job order cost system and applies factory overhead to production orders on the basis of direct labor cost. The overhead rates for 2013 are 200% of Department A and 50% for Department B. Job NO.123, started and completed during 2013, was charged with the following costs: Department Direct materials Direct labor Factory overhead
A P25,000 ? 40,000
The total manufacturing cost associated with Job 123 should be:
B P5,000 30,000 ?
a. b. c. d.
P135,000 P180,000 P195,000 P240,000
21. Sampaguita Company uses a job order cost system. The following debits(credits) appeared
in Sampaguita’s work in process account for the month of April 2013: April 1 30 30 30 30
Description Balance Direct materials direct labor factory overhead To finished goods
Amount P 4,000 24,000 16,000 12,800 (48,000)
Sampaguita applies overhead to production at a predetermined rate of 80% of direct labor costs. Job No. 5, the only job still in process on April 30,2013, has been charged with direct labor of P2,000. What was the amount of direct materials charged to Job No. 5? a. P3,000 b. P5,200 c. P8,800 d. P24,000 22. Narra Marketing Corp. uses a job order cost system. It has three production departments, X, Y and Z. the manufacturing budget cost for 2013 is a sfollows: Dept. X Dept. Y Dept.Z Direct materials P600,000.00 P400,000.00 P200,000.00 Direct labor 200,000.00 1,500,000.00 1,500,000.00 Mfg. overhead 600,000.00 100,000.00 200,000.00 For Job No. 01-90 completed in 2013, direct material cost was P75,000.00; direct labor, Dept. X, P40,000.00, Dept. Y, P100,000.00, Dept. Z, P20,000.00. the corporation applies manufacturing overhead to each job on the basis of direct labor cost using department rates predetermined at the beginning of the year based on the manufacturing budget cost. The total manufacturing cost of Job No. 01-90 is: a. P235,000 b. P310,000 c. P280,000 d. P150,000 23. Accacia Crafts manufactures to customer order using the job order cost system. For the
month just ended, it registered the following data:
Beginning work in process (5 partially completed jobs)
P300,000
Orders completed (18)
2,400,000
Orders shipped (14)
2,000,000
Materials requisitioned for the month
1,700,000
Direct labor cost
800,000
Overhead rate
150 of direct labor cost
The ending work in process inventory was: a. P1,600,000 b. P1,400,000 c. P300,000 d. P700,000 24. The accounting records for 2013 of Yamaha Music Co. showed the following:
Increase in raw materials inventory
P45,000
Decrease in finished goods inventory
150,000
Raw materials purchased
1,290,000
Direct labor payroll
600,000
Factory overhead
900,000
Freight-out
135,000
The cost of raw materials used for the period amounted to: a. P1,245,000 b. P1,290,000 c. P1,335,000 d. P1,380,000 25. The following information relates to Job No. 2468, which is being carried out by Matibay
Company to meet customer’s order. Department A
Department B
P5,000
P3,000
400
200
Direct labor rate per hour
4
5
Production overhead per direct labor hours
4
4
Direct materials consumed Direct labor hours employed
Administrative and other overhead
20% of full production cost
Profit mark up
25% of selling price
What is the selling price to t he customer of Job 2468? a. P16,250 b. P20,800 c. P17,333
d. P19,810 26. The Handyman Corp. manufactures specialized precision tools for the electronics industry. It
receives various job orders. For the month of April, it started work in two orders, East and West. The total materials cost for both orders were estimated at P80,000 of which 60% applies to East and 40% to West. Direct labor hours were estimated at 700 for East and 400 for West. The labor rate amounted to P18 per hour. Variable overhead varies at the rate of P10 per hour. By the end of April, 75% of the required materials were issued to production amounting to P90,000. Also, the two orders were all 50% completed with respect to labor and overhead. Labor hours for the month were charged at 360 to East and 180 to West. Variable overhead equated to the hourly rate given. The total actual cost for East order for the month of April is: a. P64,080 b. P45,800 c. P52,350 d. P67,600 27. Last month, Sago Company placed P60,000 of materials into production. The Printing
Department used 8,000 labor hours at P5.60 per hour and the Binding Department used 4,600 hours at P6.00 per hour. Factory overhead is applied at a rate of P6.00 per labor hour in the Printing Department and P8.00 per labor hour in the Printing Department. Sago’s inventory accounts show the following balances: Beginning
Ending
Finished goods
P22,000
P17,000
Work in process
15,000
17,600
Materials
20,000
18,000
What is the cost of goods sold at normal costing? a. P219,600 b. P214,600 c. P108,000 d. P217,200 28. Banaba Company provided the inventory balances and manufacturing cost data for the
month of January. Under the Banaba’s cost system, any over or underapplied overhead is closed to the cost of goods sold account at the end of the calendar year. Inventories
January 1
January 31
Direct materials
P30,000
P40,000
Work in process
15,000
20,000
Finished goods
65,000
50,000
Month of January Factory overhead applied
P150,000
Cost of goods manufactured
515,000
Direct materials used
190,900
Actual factory overhead
144,.000
What is the cost of goods sold at actual costing? a. P509,000 b. P524,000 c. P530,000 d. P536,000 29. Polo Company’s Job 501 for the manufacture of P2,200 shoes was completed during August
2013 at the following unit costs: Direct materials
P20
Direct labor
18
Factory overhead (includes an allowance of P1 for spoiled work)
18
Final inspection of Job 501 disclosed 200 spoiled shoes which were sold to a department store for P6,000. What would be the unit cost of the goods shoes produced on Job 501 if spoiled loss is charged to: All Production
Specific Job 501
a. P56.00
P57.50
b. P53.00
P57.50
c. P56.00
P56.00
d. P53.00
P55.00
Items 30 and 31 are based on the following data: During March Trinity Company incurred the following costs on Job Order 111 for manufacturing of 200 units: Original cost accumulation Direct materials Direct labor Factory overhead (150% of direct labor cost) Direct cost of reworking 10 units: Direct materials Direct labor
P660 800 1,200 P2,660 P100 160 P260
30. The rework costs were attributable to the exacting specifications of Job Order 111 and the
full rework costs were charged to the specific job. What is the cost per finished unit of Job Order 111? a. P15.80 b. P14.60 c. P14.00 d. P13.30 31. Assuming the rework costs were attributable to internal failure, what is the cost per
finished unit of Job 109? a. P15.80 b. P14.60 c. P14.00 d. P13.30 32. True Value Company manufactures electric drills to the exact specifications of various
customers. During April 2013, Job 403 for the production of 1,100 units was completed at the following costs per unit: Direct materials
P10
Direct labor
8
Applied factory overhead
12
Total
P30
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. The defective units were reworked at a total cost of P500, and the spoiled units were sold to an employee for P1,500. What should be the unit cost of the good units produced on Job 403? a. P33 b. P32 c. P30 d. P29 33. Some units of output failed to pass final inspection at he end of the manufacturing process.
The production and inspection supervisors determined that the incremental revenue from reworking the units exceeded the cost of rework. The rework of the defective units was authorized, and the following costs were i ncurred in working the units: Materials requisitioned from stores: Direct materials Indirect materials Direct labor
P5,000 300 14,000
The manufacturing overhead budget includes an allowance for rework. The predetermined manufacturing overhead rate is 150% of direct labor cost. The account(s) to be charged and the appropriate charges for the rework cost would be:
a. Work in process inventory control for P19,000 b. Work in process inventory control for P5,000 and manufacturing overhead control for P35,300. c. Manufacturing overhead control for P19,300. d. Manufacturing overhead control for P40,300. 34. Cosmos Corporation distributes service department overhead costs directly to producing
departments without allocation to the other service departments. Information for the month of May is as follows: Service Departments Overhead costs incurred
Maintenance
Utilities
P20,000
P10,000
Service provided to departments: Maintenance
-
10%
Utilities
20%
-
Producing- A
40%
30%
Producing- B
40%
60%
100%
100%
Total
The amount of maintenance department costs allocated to Producing-A department for May was: a. P8,000 b. P8,000 c. P10,000 d. P11,000 Use the following data in answering numbers 35 to 40 Pomelo Company has two service department (1 and 2) and two operating (producing) departments (A and B). Data provided are as follows: Service
Direct costs
Departments
Departments
1
2
A
P150
P300
P5,000
P6,000
40%
40%
20%
70%
10%
Services performed by Department 1 Services performed by Department 2
Operating
20%
Assuming the direct method is used to allocate service department costs: 35. What is the service department cost allocated to Department B?
a. P50.00 b. P60.00 c. P87.50 d. P150.00
B
36. What is the total cost of Department A?
a. P5,000.00 b. P5,295.83 c. P5,362.50 d. P5,270.00 Assuming the step-down method is used to allocate service department costs: 37. What is the service department costs allocated to Department B?
a. P60.00 b. P100.00 c. P75.00 d. P66.00 38. What is the total cost of Department A?
a. P5,375 b. P5,350 c. P5,075 d. P5,270 Assuming the reciprocal method is used to allocate service department costs: 39. What is the service department cost allocated to Department B (rounded)?
a. P60.00 b. P75.00 c. P84.78 d. P135.00 40. What is the total cost of Department A (rounded)?
a. P5,365.00 b. P5,087.00 c. P5,375.00 d. P5,085.00 41. J &J Company has two service departments (SS1 and SS2) and two productions departments
(PP1 and PP2). Departmental data for January were as follows: Costs incurred
SS1
SS2
P27,000
P18,000
Services provided to: SS1
-
20%
SS2
10%
-
PP1
50%
30%
PP2
40%
50%
What is the total allocated service departmental costs to PP2 if the company uses the reciprocal method of allocating the service department costs? (Round computations to the nearest whole number). a. P19,800 b. P21,949 c. P22,500 d. P23,051 Question 42-44 are based on the following data: Baby Company’s beginning and ending inventories for the month of November are: November 1
November 30
Direct materials
P67,000
P62,000
Work in process
145,000
171,000
Finished goods
85,000
78,000
Production data for the month of November follows: Direct labor
P200,000
Actual factory overhead
132,000
Direct materials purchased
163,000
Transportation in
4,000
Purchase returns and allowances
2,000
Baby uses one of the factory overhead control account and charges factory overhead to production at 70% of direct labor cost. The company does not formally recognize over/under applies overhead until year-end. 42. Baby Company’s prime cost for November is:
a. P370,000 b. P168,000 c. P363,000 d. P170,000 43. Baby Company’s cost of goods sold for November is:
a. P484,000 b. P491,000 c. P502,000 d. P476,000 44. Baby Company’s net charge to factory overhead control for the month of November is:
a. P8,000 debit, overapplied b. P8,000 debit, underapplied c. P8,000 credit, overapplied d. P8,000 credit, underapplied Question 45 and 46 are based on the following:
J & P tool Inc. has three service departments that support the production area. Outlined below is the estimated overhead by department for the upcoming year. Estimated Overhead P25,000 35,000 10,000
Number of Employees 2 2 1
Service Departments Receiving Repair Tool Production Departments Assembly 25 Boiling 12 The Repair Department supports the greatest of departments, followed by the Tool Department. Overhead cost is allocated to departments based upon the number of employees. 45. Using the direct method of allocation, how much of the Repair Department overhead will be allocated to the Tool Department? a. Zero b. P875 c. P7,000 d. P11,667 46. Using the step-down method of allocation, the allocation from the Repair Department to the Tool Department would be: a. Zero b. P875 c. P7,000 d. P11,667
Question 47 and 48 are based on the following information: Roque Metal Shop Inc., manufactures metal products that require casting, such as engine blocks, pistons, and engine housings. During the current year, an order of 30,000 custom housing was begun on job number 202 for Mr. German. After the job was completed, the housing was inspected and 4% of the units were determined to be defective. Mr.German agreed to accept the goods units only at 140% of cost. The spoilerd units can be sold as seconds for P15 each. Spoiled goods are kept in an inventory account separate from finished goods. Total costs charged to job number 202 are: Materials Labor (6,000 hours x P14 per hour) Factory overhead (P30 per labor hour)
P276,000 84,000 180,000
47. If the spoilage units are the result of an internal failure, what is the unit cost of good units? a. P18.00 b. P19.50
c. P18.50 d. P19.00’ 48. If the spoilage is attributable to Job 202 only, what is the unit selling price of the good units? a. P25.375 b. P20.50 c. P25.00 d. P20.375 Use the following data for Question 49 and 50. Muscle Machine Shop manufactures lifting equipment. One order from Simmer’s World for 200 lifting equipment showed the following costs per unit: Materials P400 Labor 175 Factory overhead, 160% of direct labor cost (150% in Cases in which any defective unit costs are to Charged to a specific order). Final inspection revealed that 15 of the units were not properly produced. Correction of each defective unit requires P50 for materials, P80 for labor, and factory overhead at the a ppropriate rate. 49. Assuming cost of defective units is charged to all the jobs, what is the unitr cost of finished goods? a. P650 b. P640 c. P655 d. P550 50. Assuming cost of defective units is charged to the job order, what is the unit cost of each unit manufactured? a. P674.85 b. P475.50 c. P656.25 d. P690.50
ANSWERS
1.a
11.c
21.b
31.d
41.d
2.a
12.a
22.c
32.b
42.a
3.b
13.b
23.a
33.d
43.b
4.b
14.b
24.a
34.c
44.c
5.a
15.c
25.b
35.c
45.a
6.b
16.c
26.a
36.c
46.b
7.b
17.a
27.a
37.b
47.a
8.c
18.a
28.b
38.b
48.a
9.d
19.d
29.a
39.c
49.c
10.d
20.a
30.a
40.a
50.c
SOLUTIONS AND EXPLANATIONS
1. Under normal costing, the Work in Process account is debited for the total manufacturing
costs of P79,500. The corresponding credit are: the Material account at actual costs of material used of P45,000, Wages Payable account at actual cost of direct labor P11,500, and Applied Manufacturing Overhead at estimated amount of P23,000 (P11,500 x 2). Therefore entry (a) is correct.
2. The computations as follows:
Beginning inventory of materials Debits to material account Totals P1,100,000 Ending inventory of materials (275,000+55,000) Direct materials issued to production
P275,000 825,000
330,000 P770,000
3. Computed as follows:
Cost of goods sold Add increase in finished goods inventory Cost of goods manufactured Add increased in work in process inventory Total manufacturing cost Less: Factory overhead (32,000 x 75%) Direct labor cost Cost of raw material used Add increase in raw material inventory Cost of raw materials purchased
P112,000 8,000 120,000 8,000 128,000 24,000 32,000
56,000 72,000 1,200 P73,200
4. The computation is:
Manufacturing overhead (50% of direct labor) Direct labor(30,101.80x2) Total equals 50% of total manufacturing cost Thus, the cost of raw material used equals Total manufacturing cost Add decrease in work in process inventory Cost of goods manufactured
P30,101.80 60,203.60 90,305.40 90,305.40 180,601.80 590.00 P181,200.80
5. Computed as follows:
Direct materials Direct labor Applied manufacturing overhead Total cost
201 P7,000 6,600 5,500 P19,100
6. Direct material used (Squeeze) Direct labor (270,000 /75%) Factory overhead applied (1,000,000x27%)
202 P5,800 6,000 5,000 P16,800
P370,000 360,000 270,000
Total manufacturing cost added Add beg. Work-in process inventory (Schedule 1)
1,000,000 120,000
Manufacturing cost to account for Less ending work-in process inventory
1,120,000 150,000
Cost of goods manufactured
P970,000
203 P11,600 8,400 7,000 P27,000
Total P24,400 21,000 17,500 P62,900
Schedule 1: Let x = ending WIP Inventory Therefore: P1,000,000 + .80x - x x .80x
= P970,000 = P150,000 (WIP - End) = P120,000 (WIP - Beg.)
7. The cost of finished Job order Nos. 1001, 1002, 1004 and 1005 is computed below:
Direct material used Direct labor Manufacturing overhead applied
P37,220 33,725 28,320
Total charges to WIP Less ending WIP
P99,265 43,770
Cost of goods manufactured (finished)
P55,495
8. Direct materials Direct labor Factory overhead (150% x P8,000)
P17,000 8,000 12,000
Total manufacturing costs Add WIP, Aug. 1
P37,000 3,000
Total cost of goods in process Less cost of goods manufactured
P40,000 24,000
Work-in process inventory, Aug. 31
P16,000
9. Work-in process - beginning Direct materials Direct labor (P5 x 20 hours) Applied manufacturing overhead (P4.50 x 20 hours) Indirect materials (directly identified)
Total cost of Job Order No. 210
P4,200 1,000 100 90 10 P5,400
10. The problems indicates that manufacturing overhead is applied to jobs on the basis of direct
labor cost. Department M’s predetermined overhead rate is 300% (600,000/200,000) of direct labor cost. Department A’s predetermined overhead rate is 50% (400,000/800,000). The total manufacturing costs for Job Order No. 432 is:
Direct materials
P25,000
Direct labor Department M Department A Manufacturing overhead Department M (8,000 x 300%) Department A (12,000 x 50%) Total manufacturing costs
P8,000 12,000
20,000
P24,000 16,000
30,000 P75,000
11. The first step in the solutions approach is to determined the ending work-in process
inventory, which consists of total costs charged to Job No. 232 to date. T he T-account analysis below indicates an ending work-in process balance of P9,000.
3/1 DM DL OH 3/31 balance
work-in process P12,000 P100,000 finished goods 40,000 30,000 27,000 P109,000 P100,000 P9,000
The P9,000 work-in process balance shows that the total cost of Job No. 232 to date is P9,000. This P9,000 amount consists of direct materials, direct labor and overhead (given, P2,250). The overhead has been applied at a rate of 90% of direct labor cost, resulting in the equation below:
90% x DL = P2,250 DL = P2,250 ÷ 90% DL = P2,250 Knowing both direct labor and manufacturing overhead the amount of direct materials can now be computed as follows: Total cost of job Less direct labor (P2,250 ÷ 90%) Overhead (given) cost of direct materials
P9,000 P2,500 2,250 4,750 P4,250
12. Total debit to work in process account
P145,000 125,450 19,550
Less: Credit to work in process account Work in process inventory, April 30 Less: labor and overhead charged to Job No. 456: D. Labor Job. No. 456: Overhead (P3,000 x 3/4) Job No. 789: D. Labor (P2,400 x 4/3) Job No. 789: Overhead Materials charged to Job. No. 456 and Job No. 789
P3,000 2,250 3,200 2,400
10,850 P8,700
13. First the cost of goods manufactured is to be computed as follows:
Cost of goods sold (P50,000 x 75/25) Add: Increase in finished goods inventory
P150,000 18,000
Cost of goods manufactured during September 2013
P168,000
NOTE: Since the selling and administrative expense of P25,000 is equal to 12.5% os sales, the net income of P25,000 is also equal to 12.5% of sales. Therefore, the gross profit (net income plus selling and administrative expense) is equal to 25% of sales, so that the cost of goods sold is equal to 75% of sales. The cost of raw materials inventory on August 31, 2013 can now be derived as follows: Cost of goods manufactured Add: Increase in work in process inventory Manufacturing costs to process during Sept., 2013 Less: Coversion costs: Direct labor (63,000/.75) Factory overhead
P168,000 15,000 183,000 84,000 63,000
147,000
Raw material used Add: Raw materials inventory, Sept. 30, 2013
36,000 50,000
Total raw material available for use Less: Raw materials purchases
86,000 46,000
Raw materials inventory, August 31, 2013
P40,000
14. Direct material used is computed below:
Total manufacturing costs added during 2013 Less: Applied manufacturing overhead (900,000 x 25%) Prime cost Less: Direct labor cost (225,000/.75) Direct material used
P900,000 225,000 675,000 312,000 P362,000
Work in process inventory as 12/31/013 is computed as follows: Work in process inventory, Jan. 1 Total manufacturing cost added in 2013 Less: Cost of goods manufactured
P900,000 850,000
Increase in Work in process inventory Divided by
50,000 25%
Work in process inventory, Jan. 1, 2013 Add Increase in Work in process inventory
200,000 50,000
Work in process inventory, 12/31/013
P250,00
15. The costs of material charged to Job N o. 327 is computed below:
Work in process, Sept. 1 Add: Manufacturing cost Direct Materials Direct labor Factory overhead
P30,000 P60,000 50,000 40,000
150,000
Total cost of goods placed in process Less: Cost of goods manufactured (completed) Work in process, Sept. 30 (charged to Job No. 327) Less: Direct labor [4,600 ÷(40,000/50,000)] Factory overhead
180,000 160,000 20,000 P5,750 4,600
10,350
Direct materials charged to Job No. 317
P9,650
16. Direct materials Direct labor Overhead: 75% x P122,000
P125,000 122,000 91,500
Total charged to work in process Less: Amount charged to work in process
338,500 310,500
Total costs applicable to Job No. 100 Less: conversion costs of Job No. 100: Direct labor Overhead: 75% x P10,000
28,000 P10,000 7,500
17,500
Direct materials charged to Job No. 100 18. Cost of goods manufactured Add: Increase in work in process inventory Total cost added to production
P10,500 P153,65 0 8,000 161,650
Less: Applied overhead (60,000 x 100/75) Prime cost (direct material and labor)
80,000 81,650 P720,00 0
19. Cost of goods sold at normal Add: Underapplied overhead allocated to cost of goods sold: Cost of goods sold COGS + WIP + FG
X
Underapplied overhead Therefore:
720,000 720,000 + 54,000 + X 90,000 Cost of goods sold at actual costing
45,000 =
37,500 P757,500
20. The total cost of any manufactured job includes direct material used, direct labor and factory overhead applied. In Department A, the overhead rate is 300% of direct labor cost, so direct labor must be P20,000 DL x 200% = OH Applied DL x 200% = P40,000 DL= P40,000 ÷ 200% = P20,000 In Department B, the overhead rate is 50%, so overhead applied is 50% of P30,000, or P15,000. The cost of Job 123 totals P135,000 as computed below: Direct material used (P25,000 + P5,000) P30,000 Direct Labor (P20,000 + P30,000) P50,000 Overhead applied (P40,000 +P15,000) 55,000 Total manufacturing cost of Job P135,000 21. The problem states that Job 5 is the only Job still in process on April 30, so the total costs charged to the Job must be equal the ending balance of the work process inventory as computed below:
Beg. Balance DM
P4,000 24,000
Work in Process P48,000 FG
DL MO
Ending Balance
16,000 12,800 56,800
48,000
P8,800
Therefore the cost of direct materials is P5,200 [P8,800- (P2,000 + P1,600)]
22. Direct materials Direct labor(P40,000 + P100,000 x P20,000) Applied overhead [(P 160,000 x ( P900,000/ 3,200,000)] Total manufacturing cost
23. Direct materials Direct labor Applied overhead (P800,000 x 150%) Total manufacturing cost Add: Work in process, beginning
P 75,000 160,000 45,000 P280,000
P1,700,000 160,000 45,000 3,700,000 300,000
Total cost of goods placed in process Less: Cost of goods manufactured Work in process, end
4,000,000 2,400,000 P1,600,000
24. Raw materials purchased Less: Increase in raw materials inventory Cost of raw materials used
P1,290,000 45,000 P1,245,000
Note: Freight out is irrelevant for this question because freight out is a selling expense, thus, it would not be used in the computation. 25. Direct materials (P5,000 + P3,000) Direct Labor Dept. A (400 X P4) Dept B (200 X P5) Production overhead Dept. A (400 X P4) Dept B (200XP4) Total production cost Administrative and other overhead (P13,000 x 20%) Total manufacturing cost
P 8,000 1,600 1,000 1,600 800
2,600
2,400 P13,000 2,600 P15,600
Therefore selling price is P20,800 (15,600 ÷75% ) 26. Direct materials (P90,000 x 60%) Direct labor (360 x P18) Variable overhead (360 x 10)
P54,000 6,480 3,600
Actual cost of East
P64,080
27. To compute the answer statement of cost of goods manufacturing and sold is prepared as follows:
Direct material used
P60,000
Direct labor [(8000 hours x P5.60) + (4,600 hours x P6.00)] Applied manufacturing overhead [(8,000 x P6.00) + (4,600 hours x P8.00
72,400
Manufacturing costs
217,200
Beginning work in process
15,000
Total
232,200
Ending work in process
17,600
Cost of goods manufactured
214,600
Beginning finished goods inventory
22,000
Cost of goods available for sale
236,600
Ending finished goods inventory
17,000
Cost of goods sold at normal costing
219,600
28. Cost of goods manufactured
84,800
P515,000
Beginning finished goods Jan 1
65,000
Total Ending finished goods Jan 31
580,000
50,000 Cost of goods sold actual (before adjustment)
530,000
Over-applied overhead (P150,000 - P144,000)
(6,000)
Cost of goods sold actual
524,000
29. If spoilage loss is charged to all production , the cost of good shoes in J ob 501 would be ab the full unit cost of P56,which includes the normal spoilage allowance. Because the factory overhead of P18 per unit includes an allowance of P1 per unit over the entire production. If spoilage loss is charged o this specific Job 501,spoilage is a function of specific job requirements rather than general factory condition. Then, the overhead rate should not include the P1 allowance for spoiled work. Therefore the cost of all shoes, before adjustment for spoilage is P55 (56-1). The cost of the 2,000 good shoes on Job 501 would be the total cost of all 2,200 shoes less the scrap value of bad shoes. Cost of 2,200 shoes (2,200 x P55) Scrap value of bad shoes Net cost of Job 501 Cost per good shoes (115,000 /2,000)
P121, 000 ( 6,000) P115,000
P57.50
Note that the net cost of spoilage[ (200 x 55)- 6,000] is charged to the good shoes in Job 501. In this case, the net spoilage cost is included in the charge to finished goods along with the cost of good units. 30. Original Cost (charged to work in process) Rework cost: Direct materials Direct labor Factory overhead (150% x P 160) Total cost Divided by number of units Unit cost of Job order III
31. Original cost
P 2,660 P100 160 240
500 P 3,160 200 P15.80
P2,660
Divided by number of units Unit cost
200 P13.30
The total network cost is charged to Manufacturing Overhead control account.
32. Original cost ( 1,100 units x P30)
P33,000
Rework cost of detective units
500
Proceeds from sale of spoiled units Total cost Divide by goods units (1,100 units - 100 spoiled units) Unit cost
(1,500) P32,000 ÷1,000 P32
33. Rework cost Direct materials
P5,000
Indirect materials
300
Direct labor
14,000
Applied manufacturing overhead (14,000 x 150%)
21,000
Total
P40,300
The total rework cost as computed above should be charged to manufacturing overhead control account since the overhead budget includes an allowance for rework. 34. Since the cost of service department costs is allocated directly to producing departments, then the direct method is to be used. Under this method, no allocation of services rendered to other service department is made. Therefore, the P20 ,000 is allocated to Producing Department as follows:
Producing A (20,000 x 40 %/80%) Producing B ( P20,000 x 40%/ 80%)
10,000 10,000
35. Allocated to Department B:
From department 1 cost (P150 x 20/60) From department 2 cost (P300 x 10/80) Total 36.
P50.00 37.50 P 87.50
Direct cost Allocated cost From department 1 (P150 x 40/60) P100 From department 2 (P300 x 70/80) 262.50 Total cost of Dept A
P5,000
362.50 P5,362.50
37. Under the step down method the service department with the highest costs is to be allocated first. The allocation is as follows:
Service Departments 1 2 P150 P300
Direct costs Allocation of: Department 2 cost ; 20:70:10
60
Department 1 cost; 40:20
(300)
(210)
Total
Operating Departments A B
P210
P30
140
70
P350
P100
The cost allocated to Department B is therefore P100. 38. Direct costs Allocated costs (refer to number 37) Total cost of Dept A
P5,000 350 P5,350
39. The allocation of cost of Service Department costs to Operating Departments under the
Reciprocal Method is shown below:
Direct costs Allocation of Dept. 1, 40:40:20 Allocation of Dept. 2, 20:70:10 Allocation of Dept. 1, 40:40:20 Allocation of Dept. 2, 20:70:10 Allocation of Dept. 1, 40:40:20 Allocation of Dept. 2, 20:70:10 Allocation of Dept. 1, 40:40:20 Allocation of Dept. 2, 20:70:10
Service Departments 1 2 P150 P300 (150) 60 72 (360) (72) 28.80 5.76 (28.80) (5.76) 2.30 .46 (2.30) (.46) .18 .04 (.18)
Operating Departments A B P60 252 28.80 20.16 2.30 1.61 .18 .13
P30 36 14.40 2.88 1.16 .23 .10 .01
Allocation of Dept. 1, 40:40:20 Allocation of Dept. 2, 20:70:10 Total allocated cost
(.04) -
.02 (.02)
.02 .02 P365.22
P84.78
An alternative way to implement reciprocal allocation is to formulate and solve linear equations. This requires three steps as follows: Step 1: Let D1 be the complete reciprocated costs of Department 1 and D2 the complete reciprocated costs of Department 2. We then express the data as follows: D1 = P150 + .20D2 D2 = P300 + .40D1 The .20 D2 in equation (1) is the percentage of Department 2 services used by Department 1. The .40 D1 in equation (2) is the percentage of the Department 1 used by Department 2. By complete reciprocated costs in equations (1) and (2), we mean the Department 1’s own costs plus any interdepartmental cost allocations. Step 2: Solve the Set of Linear Equations to Obtain the Complete Reciprocated Costs of Each Service Department. Substituting equation (2) into (1): D1 =P150 = [.20(P300 + .40D1)] D1 =P150 + 60 + .08D1 .92D1 = P210 D1 = P228.26 Substituting into equation (2) D2 =P300 + .40(P228.26) D2 =P300 + 91.30 D2 =P391.30 Step 3: Allocate the Complete Reciprocated Costs of Each service Departments to All Other Departments (Both Service Departments and Operating Departments) on the Basis of the Usage Percentages. The allocation is as follows: Service Departments Direct costs Allocation of Dept. 1, 40:40:20 Allocation of Dept. 2, 20:70:10 Total allocations
40. Total cost of Department A:
1 P150 (228.26) 78.26
2 P300 91.30 (391.30)
Operating Departments A B P91.30 273.91 P365.21
P45.65 39.13 P84.78
Direct costs Allocated costs Total
P5,000 365.22 P5.365.22
41. The correct answer is (d). the reciprocal method allocates service department costs to other service departments as well as to production departments by means of simultaneous equations, as shown below. Thus, total service cost allocated to PP2 is P23,051 [(40% x P31,224) + (50% x P21,122)]. SS1 = P27,000 + .2 SS2 27,000 + [.2 (18,000 + .1 SS1)] 27,000 + 3,600 + .02 SS1 .98 SS1= P30,600 SS1= P31,224
SS2= P18,000 + .1 (P31,224) = P21,122 42. The correct answer is (a). Prime cost is equal to direct materials plus direct labor. The f irst step is to compute the cost of raw materials used during the month as follows: Beginning materials inventory P67,000 Purchases 163,000 Transportation-in 4,000 Purchases returns and allowances ( 2,000) Materials available for use 232,000 Ending materials inventory ( 62,000) Materials used P170,000
Adding the P170,000 of materials used to the P200,000 of direct labor results in a total of P370,000. 43. The correct answer is (b). The computation is:
Cost of goods manufactured: Prime cost (No.44) Applied overhead (70%of P200,000) Manufacturing cost Work-in-Process, Nov.1 Work-in-Process, Nov.30 Cost of goods manufactured Finished goods inventory, Nov.1 Finished goods inventory, Nov.30 Cost of goods sold
P370,000 140,000 510,000 145,000 (171,000) 484,000 85,000 ( 78,000) P491,000
44. The correct answer is (c). The computation is: Actual factory overhead Applied factory overhead Overapplied overhead (credit)
P132,000 140,000 P 8,000
45. The correct answer is (a). the direct method allocates service department costs directly to the producing departments without recognition of services provided among the service departments. Hence, no service cost is allocated to the Tool Department because it is a service department. 46. The correct answer is (b). Under the step-down method, cost are allocated to all departments. However, no reciprocal allocations are allowed. The process may begin with the department that supports the greatest number of departments that incurs the largest costs, or that provides the greatest percentage of its services to other service departments. Thus, the Repair Department is the logical starting point. Given that service costs allocated to each department (service or production) on the basis of its proportion of employees (excluding employees in the allocating department). The allocation of the Repair Department’s overhead to the Tool Department is P875 {P35,000 x [1 employee / (1+2+25+12)]}. 47.The unit cost is P18 as computed below: Total manufacturing costs Cost of spoiled units (30,000 x 4%) x P540,000/30,000 Cost of the good units (30,000 x 96%) 28,800 Unit cost (P518,400 / 28,800 units)
P540,000 ( 21,600) P518,400 P 18
48. Letter (a) is correct. The unit selling price is computed as follows: Total manufacturing costs Scrap value of spoiled units (30,000 x 4%) x P15 Cost of good units Selling price (522,000 x 14%) Unit selling price (P730,800/28,800 units)
P540,000 ( 18,000) P522,000 P730,800 P 25,375
49. Choice (c) is correct. The computation is: Total manufacturing costs: Materials (200 x 400) Labor (200 x 175) Applied overhead (160% X 35,000) Total Unit cost (P131,000/200)
P40,000 35,000 56,000 P131,000 P 655
50. Choice (c) is correct. The unit cost is computed as follows: Total manufacturing costs: Materials Labor
P40,000 35,000
