QUIZ 1 – COST ACCOUNTING

PART I. The following are items that are normally found in the costs reports of a car assembly company. Classify each cost as either direct (D) or
indirect (I) with respect to the assembly process and variable (V) or fixed (F) with respect to how the total costs of the plant change as the number
of cars assembled changes. M – Manufacturing NM – Non-Manufacturing (Period Cost)
M/NM V/F
Cost of engines shipped from producing plants. M V
Salary of research and development officer in the assembly plant NM F
Annual fire insurance policy for the assembly plant M F
Wages paid to assembly line workers on an hourly basis M V
Electricity cost in the assembly plant M V
Freight cost of parts received from suppliers M V
Depreciation of machines in the assembly plant M F
Salary of assembly plant supervisor M F
Rent paid for the assembly plant M F
Seats installed in cars M V

PART II. True or False

1. TRUE: Factory rent is included in manufacturing overhead, but office rent is a period cost
2. TRUE: Factory supervision, telephone, heat, light, and power are all example of indirect manufacturing overhead costs.
3. TRUE: Another name for assignable product costs is inventoriable costs.
4. FALSE: The income statement of a manufacturing firm has a cost of goods manufactured and not a cost of goods sold.
5. TRUE: The relevant range is where a fixed cost remains constant
6. FALSE: Period costs are often called inventoriable costs.
7. FALSE: Variable costs per unit are affected by changes in activity
8. TRUE: A decrease in production will result in an increase in fixed production cost per unit
9. TRUE: A P50, 000 grinding machine purchased last year is a sunk cost even if not been paid for.
10. FALSE: If used to manufacture tables, all of the following would be indirect costs: electricity, glue, bolts, and wood for legs.

Part III. Compute for the missing amount

The total maintenance costs of Silver Company in the last four months are presented below:
Month Machine hours Maintenance cost
January 7, 200 P450, 000
February 6, 800 P422, 000
March 7, 000 P440, 000
April 6, 400 P418, 000
11. Variable cost per machine hour
High low method:
450,000 – 418,000 / 7,200 – 6,400 = 40

Least Square Method:

11,850,500,000 = 27,400 (a) + 187,690,000 (b)

11,864,800,000 = 27,400 (a) + 188,040,000 (b)
14,300,000 = 350,000
14,300,000 / 350,000 = 40.857 or 40.86

12. Total fixed cost

418,000 = 6400 x 40 + FC
418,000 = 256,000
418,000 – 256,000
= 162,000

13. Budgeted maintenance cost in May if the company is planning to use 7, 500 hours.
Y = 40 (X) + 162,000
Solution:
40 (7,500) + 162,000 = 462,000
14. Budgeted maintenance cost in May if the company is planning to use 8, 000 hours.
40 (8,000) + 162,000 = 482,000
PART IV. Hagler’s has the following machine hours and production costs for the last six month of last year:
Month Machine Hours Production Cost
July 15, 000 P12, 075
August 13, 500 P10, 800
September 11, 500 P9, 580
October 15, 500 P12, 080
November 14, 800 P11, 692
December 12, 100 P9, 922
15. Compute the variable rate per machine hour

12,080– 9,580 = 2,500

15,500 – 11,500 = 4,000
= 0.625

16. Compute the fixed amount of the production cost

9,580 = 0.625 x 11,500 + FC

9,580 = 7,187.5 + FC
9,580 – 7,187.5 = FC
9,580 – 7,246
2,392.5

17. Compute the total production cost using 17, 500 machine hours.

Y = 0.625 (X) + 2,392.5

0.625 (17,500) + 2,392.5
=13,330

PART V. Norton Company’s manufacturing costs for 2009 were as follows: Direct materials, P300,000; Direct labor – P400, 000; Factory overhead
variable – P80, 000 and fixed – P50, 000.
18. Prime cost
Solution:
Direct materials + Direct labor
P300,000 + 400,000 = 700,000
19. Conversion cost
Direct labor + Manufacturing overheads
400,000 + 80,000 + 50,000 = 530,000

20. Total manufacturing cost

Direct materials + Direct labor + Factory Overhead
300,000 + 400,000 + 80,000 + 50,000 = 830,000

PART VI. The following data are available for Justine Corporation for the year ending December 31, 2009
January 1 December 31
Inventories
Materials P100, 000 P150, 000
Work in process P180, 000 P128, 000
Finished Goods P90, 000 P110, 000
Direct labor cost P290, 000
Materials purchased P320, 000
Factory overhead – applied at 120% of direct labor cost
21. Direct materials used
22. Total manufacturing cost
23. Cost of good manufactured
24. Cost of goods sold
PART VII. The following is a partial list of costs incurred last month by the Fontana
Company.
Product advertising P20, 000
Fire insurance premium for factory P5, 000
Electricity, sales office P2, 000
Lubricating oil for sewing machines P4, 000
Foam cushions used in production P32, 000
Assembly line worker’s wages P46, 000
Rent, factory building P10, 000
Freight-out P6, 000
Salary, company president P25, 000
Property taxes, corporate headquarters P3, 000
25. What amount of these costs would be considered manufacturing overhead?
Indirect cost
26. What amount of these costs would be considered period costs?
27. What amount of these costs would be considered product costs?

PART VIII. The financial statements of Michelle Company included these items.
Marketing costs P128, 000
Direct labor costs P320, 000
Administrative costs P94, 000
Direct materials used P385, 000
Fixed factory overhead costs P285, 000
Variable factory overhead costs P175, 000
28. Prime cost
385,000 + 320,000 = 705,000
29. Conversion cost
320,000 + 285,000 + 175,000 = 780,000
30. Total product cost.
Solution:
DM 385,000
TDL 320,000
TOH(285,000 + 175,000) 460,000
Total prod. Cost 1,165,000

31. Total period cost

Solution:
Mktg. cost 128,000
Admin cost 94,000
Total Period Cost 222,000
PART IX. For June MLT Company had cost of good manufactured equal to P150, 000; materials purchases, P33, 000; depreciation of factory assets,
P17, 000; cost of goods sold, P150, 000; expired insurance on factory assets, P2, 000; cost of goods available for sale, P190, 000; and total factory
labor, P49, 000. Inventories were as follows
June 1 June 30
Materials P25, 000 P30, 000
Work in Process P50, 000 P40, 000
Finished Goods ?
General factory overhead of P13, 000 was incurred in June; this figure includes all factory overhead except indirect labor, indirect materials,
depreciation and insurance. Direct labor cost for the month was six times larger than indirect labor cost. The cost of indirect materials used was
P1,000. The company uses a single materials account for direct and indirect materials.
32. The direct materials used 27,000
33. Finished goods inventory, June 1 71,000

DM,Beg 25,000
Purchases 33,000
DM = 27,000
DM, End (30,000)
DM Used 27,000
DL 42,000 IDM = 1,000
FOH 40,000
TMC 109,000
WIP, Beg 50,000
WIP, End (40,000)
COGM 119,000
FG, Beg 71,000 190,000 (TGAS) – 119,000 (C0GM) = 71,0000
TGAS 190,000
FG, End (40,000)
COGS 150,000

PART X. The accounting records for 2008 of EGGS Manufacturing Company showed the following
Decrease in raw materials inventory P45, 000
Increase in Finished goods inventory P150, 000
Increase in work in process inventory P60, 000
Raw materials purchased P1, 290, 000
Direct labor payroll P600, 000
Factory overhead P900, 000
34. The cost of raw materials used for the period amounted to 1,335,000

35. The cost of goods manufactured is 2,775,000

DM, Beg 45,000

Purchased 1,290,000
DM, End 0
DM, Used 1,335,000
DL incurred 600,000
FOH 900,000
TMC 2,835,000
WIP, Beg 0
WIP, End (60,000)
COGM 2,775,000
PART XI. Brand Company manufactures computer stands. Cost of Goods Sold is P125, 000, the ending balance of Finished Goods Inventory is 80%
less than its beginning balances. The Cost of Goods Manufactured is 60% of cost of goods sold.
36. What is the beginning balance of Finished Goods Inventory?

COGM = 60% of COGS

COGS = P125,000
FG End = 80% less than its Beg.

COGM 75,000
FG, Beg
FG, End
COGS 125,000

(125,000 – 75,000)
50,000 = x – (.20x)
50,000 = 1x – 0.20x
50,000 = 0.8 x
0.8 0.8 x
= 62,500

PART XII. The following information was taken from the records of PARIS Manufacturing Company:
Increase in Finished Goods P36, 500
Purchases P70, 000
Increase in work in process P18, 200
Direct labor P84, 875
Decrease in raw materials P9, 700
Work in process, beginning P64, 000
Total costs placed in process P310,000

37. The amount of cost of goods sold

191,300
38. The amount of applied factory overhead 81,425
The following information pertains to Ashley Company’s manufacturing operations:
Decrease in raw materials P6, 000
Direct labor payroll P60, 000
Decrease in work in process P8, 000
Direct labor rate / hour P7.50
Increase in finished goods P18, 000
Factory overhead rate per hour P10
Purchases P84, 000
39. The amount of prime cost
40. The amount of conversion cost.

Solution:
DM + DL
Prime cost: 90,000 + 60,000 = 150,000

DL + OH
60,000 + 80,000 = 140,000