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129281836 Review Material in cost accounting

Bachelor of science in accountancy (Aliat Universidades)

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CHAPTER 3 COST ACCOUNTING CYCLE

Multiple Choice – Theories

1. Cost of goods sold is

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

Answer: A

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

Answer: C

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

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

Answer: B

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

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

Answer: C

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

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

Answer: B

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6. Sales commissions are classified as

a. prime costs
b. period costs
c. product costs
d. indirect labor

Answer: B

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

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

Answer: C

8. A manufacturing company reports cost of goods manufactured as

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

Answer: C

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

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

Answer: D

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

Answer: D

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Multiple Choice - Problems

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

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

Answer: B
Solution:

Cost of Goods Manufactured P 340,000

Finished Goods, Beginning 45,000
Total Goods available for Sale 385,000
Finished Goods, ending (52,000)
Cost of Goods Sold 333,000
Sales (SQUEEZE) P 429,000

COGS 333,000
Gross Profit 96,000

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

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

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

Answer: A

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Solution:
Direct Materials

Purchases 430,000
Less: Increase in raw materials 15,000 415,000
Direct Labor 200,000
Factory Overhead 300,000
Manufacturing Cost 915,000
Add: Decrease in Finished Goods 35,000
Cost of Goods Sold 950,000

Items 3 through 5 are based on the following information pertaining to Glenn

Company’s manufacturing operations.

Inventories 3/1/11 3/31/11

Direct Materials P 36,000 P 30,000
Work-in-process 18,000 12,000
Finished goods 54,000 72,000
Additional Information for the month of March 2011

Direct materials purchased P 84,000

Direct labor payroll 60,000
Direct labor rate per hour 7.50
Factory overhead rate/direct labor 10.00
hour
3. For the month of March 2011, prime cost was

a. P 90,000

b. P 120,000
c. P 144,000
d. P 150,000
Answer: D

Solution:

Direct Materials

Direct Mats. – Beg. 36,000

Add: Purchases 84,000
Less: Direct Mats. – End. (30,000) 90,000
Direct Labor 60,000
Prime Cost 150,000

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

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

Answer: B

Solution:
Direct Labor 60,000

Factory Overhead (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 218,000
b. P 224,000
c. P 230,000
d. P 236,000

Answer: D

Solution:
Direct Materials used
Direct Materials, 3/1/11 36,000

Add: Purchases 84,000

Total available for use 120,000

Less: Direct Materials, 3/31/11 30,000 90,000
Direct Labor 60,000

Factory Overhead 80,000

Total Manufacturing Costs 230,000

Add: Work in process, 3/1/11 18,000
Cost of Goods put into process 248,000
Less: Work in process, 3/31/11 12,000
Cost of Goods manufactured 236,000

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

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

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March 1 to 31, 2011

Direct Labor Cost 120,000

FOH-Applied 108,000
Cost of Goods Sold 378,000

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

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

Answer: C

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

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

Answer: B
Solution:

Direct materials used

Materials, Beg. 40,000
Purchases (SQUEEZE) No. 6 180,000
Less: Materials, End. (50,000) 170,000
Direct Labor 120,000
Factory Overhead 108,000
Manufacturing Costs 398,000
Add: Work in process, Beg. 25,000
Cost of goods put into process 423,000
Less: Work in process, End (35,000)
Cost of goods manufactured 388,000
(SQUEEZE) No. 7
Add: Finished goods, Beg. 60,000
Goods Available for Sale 448,000
Less: Finished goods, End. (70,000)
Cost of Goods Sold 378,000

Some selected sales and cost data for Alcid Manufacturing Company are given below:

Direct materials used P 100,000

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

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8. Prime cost was:

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

Answer: B
Solution:

Direct materials P 100,000

Direct labor P 150,000

Prime cost P 250,000
9. Conversion cost was:

a. P 150,000

b. P 225,000
c. P 250,000
d. P 270,000
Answer: B

Solution:

Direct labor P 150,000

Factory overhead P 75,000

Conversion cost P 225,000
10. Direct cost was:

a. P 225,000

b. P 250,000
c. P 310,000
d. P 325,000
Answer: C

Solution:

Direct Selling and administrative Expense

(P 120,000 x 50%) P 60,000

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

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11.Indirect cost was:

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

Answer: B
Solution:

Indirect Selling and Administrative Expense

(P 120,000 x 50%) P 60,000
Factory overhead 75,000
Indirect cost P 135,000
12. Product cost was:

a. P 135,000

b. P 250,000
c. P 325,000
d. P 370,000
Answer: C

Solution:

Direct materials P 100,000

Direct labor 150,000

Factory overhead 75,000
Product cost P 325,000
13. Variable cost was:

a. P 250,000

b. P 280,000
c. P 352,000
d. P 370,000
Answer: C

Solution:

Variable Selling and Administrative Expense

(P 120,000 x 60%) P 72,000

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

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

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

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

Answer: D
Solution:

Manufacturing costs P 600,000

Add: Finished goods, beginning 25,000

Goods available for sale P 625,000

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

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

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

Answer: B
Solution:

30,000
Direct Materials
Direct Labor 40,000
Factory Overhead 20,000
Manufacturing Costs 90,000
Add: Work in process, Beg. 20,000
(SQUEEZE)
Cost of goods put into process 110,000
Less: Work in process, End. 15,000
Cost of Goods Manufactured 95,000

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

Answer: B

Solution:
Sales 360,000
Cost of Goods Sold
Cost of goods manufactured 120,000
Add: Finished goods, beg. 50,000
(SQUEEZE)
Goods available for sale 170,00
Less: Finished goods, end. 30,000 140,000
Gross Margin 220,000

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

Answer: B
Solution:

Sales P 700,000

Less: Gross Margin (325,000)

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

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During the month of January, F Co.’s direct labor cost totaled P 36,000, and the direct
labor cost was 60% of prime cost.

18.If total mfg. costs during January were P 85,000, the factory overhead was:

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

Answer: B
Solution:

Manufacturing Costs P 85,000

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

Factory overhead P 25,000

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

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

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

Answer: B
Solution:

Direct materials P 100,000

Direct labor 150,000

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

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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. P0

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

Answer: D
Solution:

Direct materials, beginning P 300,000

Add: Direct materials, End 50,000

Direct Material Purchases P 350,000

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

Direct labor cost incurred P 250

Direct materials used 110
Beginning work in process 50
Ending work in process 300
Finished goods completed 170
a. P 60

b. P 410
c. P 560
d. P 580
Answer: A

Solution:

Direct labor cost incurred 250

Direct Materials Used 110

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

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

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22. Determine the sales for the year.

Gross profit P 280,000

Ending inventory 120,000
Goods available for sale 180,000
a. P 300,000

b. P 340,000
c. P 400,000
d. P 460,000
Answer: B

Solution:

Goods Available for Sale P 180,000

Less: Inventory,end 120,000

Cost of Goods Sold 60,000
Add: Gross Profit 280,000
Sales 340,000

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

Given the following information:

Finished goods beginning P 26,000

Finished goods ending 37,000
Cost of goods manufactured 127,000
23. What is the cost of goods sold?

a. P 115,500

b. P 138,500
c. P 153,000
d. P 190,500
e. P 116,000
Answer: E

Solution:
Cost of Goods Manufactured 127,000

Add: Finished Goods, beg. 26,000

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

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

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

Work in process inventory, January 1 P 40,000

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

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

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

Answer: B
Solution:

Direct Materials used 24,000

Factory Overhead Applied 36,000

Direct Labor (60,000) SQUEEZE
Total Manufacturing Cost 120,000

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

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

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

Answer: A
Solution:

Total Manufacturing Cost 120,000

Work in process, beg 40,000

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

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

Direct labor P 2,400

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

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

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

Answer: D
Solution:

Direct materials 5,900 SQUEEZE

Direct Labor 2,400

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

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

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

Answer: D

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Solution:
Sales 50,000

Cost of Goods Sold (17,000)

Gross Profit 33,000
Total selling, general, and administrative costs (14,000)
Net Income 19,000

* Net Income is the increase in the retained earnings.

Arizona Manufacturing Company reported the following year-end information

Work in process inventory, January 1 180,000

Raw materials inventory, January 1 50,000
Work in process inventory, December 31 150,000
Raw materials inventory, December 31 80,000
Raw materials purchased 160,000
Direct labor 150,000
Factory overhead applied 100,000
Factory overhead control 120,000
28. Cost of goods manufactured for the year is

a. P 380,000

b. P 410,000
c. P 350,000
d. P 440,000
Answer: B

Solution:

Materials Used:

Raw Materials, beg 50,000

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

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

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

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

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

Answer: A
Solution:

Cost of goods manufactured 258,000

Add: Finished goods, beg. 126,000

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

30. Total manufacturing costs for Alabama Corporation

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

Answer: A
Solution:

Cost of goods manufactured 258,000

Work in process, end 110,000

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

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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.

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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.

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Multiple Choice - Problems

1. According to the net method, which of the following items should be included in the cost of
inventory?
Freight-cost Purchase discounts not taken
a. Yes No
b. Yes Yes
c. No Yes
d. No No

Answer: A

Explanation:

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

2. The weighted average for the year inventory cost flow method is applicable to which of the
following inventory system?
Periodic Perpetual
a. Yes Yes
b. Yes No
c. No Yes
d. No No
Answer: B

Explanation:

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

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

a. Scrap, but not spoilage

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

Answer: C

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Explanation:

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

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

Units Unit Cost

January 10 200 22.00
18 250 23.00
28 100 24.00

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

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

Answer: A
Solution:

150 units x 23 (Unit Cost) = 3,450

100 units x 24 (Unit Cost) = 2,400
250 units 5,850

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

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

Direct Materials P 20.00

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

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

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

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Answer: C

Explanation:

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

Solution/Entries:
Work in Process (56 x 2200) 123,200

Materials 44,000
Payroll 39,600
Factory Overhead 39,600
Spoiled Goods 6,000

Factory Overhead 5,200

Work in Process 11,200

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

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

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

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

Answer: B
Solution/Entries:

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

Materials 44,000
Payroll 39,600
Factory Overhead 37,400
Spoiled Goods 6,000

Work in Process 6,000

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

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

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Palmer Corporation is a manufacturing concern that uses a perpetual inventory system. The following
data on the material inventory account is provided for 2009.

Material balance P 275,000

Other debits to the materials account during the year 825,000
Increase of ending over beginning inventory 55,000
7. How much is the cost of materials issued to production?

a. P 1,045,000

b. P 770.000
c. P 880,000
d. P 430,000

Answer: B

Solution:

Beginning Inventory P 275,000

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

Material Balance P 275,000

Add: Increase of ending over beginning inventory 55,000
Ending Inventory P 330,000

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

Direct materials P 13,200

Direct labor 16,000
Factory overhead (150% of direct labor) 24,000
Direct costs of reworked 10 units

Direct materials 2,000

Direct labor 3,200

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

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8. The cost of Job 75 was

a. P 316
b. P 266
c. P 280
d. P 292

Answer: A

Explanation:

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

Solution:
Work in Process 53,200

Materials 13,200
Payroll 16,000
Factory Overhead 24,000
Work in Process 10,000

Materials 2,000
Payroll 3,200
Factory Overhead 4,800
Finished Goods 63,200

Work in Process 63,200

Unit Cost = 63,200/200 = P 316

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

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

a. 700 units at P 5,800

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

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Answer: C
Solution:

No. of units Cost per unit Total Cost

April 5 Received 100 units x P7 700
11 Received 100 units x 8 800
15 Received 200 units x 6 1,200
30 Received 300 units x 9 2,700
Cost of materials purchases 700 units 5,400

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

10.The economic order quantity for Material A is

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

Answer: B

Solution:

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

carrying cost per unit of inventory

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

= 160,000

= 400 units

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

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

Answer: A

Solution:

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

= 600 units

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

12.What is the economic order quantity of Justine Corporation?

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

Answer: A

Solution:

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

= 250 units

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

Ordering Cost Carrying Cost.

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

Answer: C

Solution:

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

Carrying Cost = EOQ x carrying cost per unit CC

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

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

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14.What is Ram’s economic production run size?

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

Answer: C

Solution:

Economic Production Run Size = 2 (Annual Demand) (Setup Cost) / Carrying Cost
= 2(5000) (3.60) / 2.5
= 120

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

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

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

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

Answer: D
Solution:

Beginning 400 @ 1.80 = 720

Sept. 8 600 @ 2.10 = 1,260

Sept. 20 250 @ 2.08 = 520 (520/250 = 2.08)
Sales 1250 @ 4.00 = 2,500

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The following information pertains to Material X used by Nikki Company

Annual usage in units 20,000

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

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

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

Answer: D
Solution:

Reorder Point =

= 3200 units

The following information relates to PRTC Company

Units required per year 60,000

Cost of placing an order P 900

Carrying cost per unit per year P 1,200

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

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

Answer: B

Solution:

EOQ =

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= 300 units

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

Original cost accumulation P 660

Direct materials 800
Direct labor 1,200
Factory overhead P2,660
Direct costs of reworking 10 units:

Direct materials P 100

Direct labor 160
P 260

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

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

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

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

Answer: B

Solution:

FOH rate =

Factory Overhead = 160 x 1.5 = 240

Original cost accumulation

Direct Materials P 660
Direct Labor 800
Factory overhead 1,200 P 2,660
Add: Direct costs or reworking 10 units:
Direct Materials 100
Direct Labor 160
Factory overhead 240 500
Total P 3,160

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Divide by 200 motors

Cost per finished unit of Job 209 using Method A P 15.80

19. The cost per finished unit of Job 209 using Method B is:
a. P 13.30

b. P 15.80
c. P 15.30
d. P 13.60
Answer: A

Solution:

Original Cost P 2,660

Divide by 200 motors
Cost per finished unit of Job 209 using Method B P 13.30

Tools Company manufactures electric drills to the exacting specifications of various customers.
During February 2008, Job 403 for the production of 1,100 drills was completed at the following cost
per unit:

Direct materials P 100

Direct labor 80
Factory overhead 120
Total 300

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

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

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

Answer: B
Solution/Entry:

Work in Process 330,000

Materials 110,000
Payroll 88,000
Factory Overhead 132,000

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Spoiled Goods 15,000

Work in Process 15,000

Work in Process 15,000

Materials, Payroll, FOH 15,000

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

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

The following information relates to Blueberry Company’s materials Y

Working days per year 240

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

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

Safety Stock Order Point

a. 600 600

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

No answer, due to lack of information.

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

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

Answer: C

Solution:

EOQ =

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EOQ =
EOQ = 6,326 units

No. of production runs=

=
= 16

The following information is about a company’s inventory costs

Total cost to place one order P 50

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

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

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

Answer: B

Solution:

EOQ =

R = 1,960,000 units

24.How many orders will be placed?

a. 143
b. 200
c. 280

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d. 286

Answer: C

Solution:

No. of orders =

= 280

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

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

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

Answer: D
Solution:

Total annual inventory cost = 3,000 x 90%

= P 2,700

26.What is the economic quantity order?

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

Answer: C

Solution:

EOQ =

=
= 2,324 units

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

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

Answer: C

Solution:

Times of order =

= 39 times

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

a. 900 units remaining in stock

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

Answer: B

Solution:

Order Point =

= 600 units

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

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

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

Answer: D

Solution:

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EOQ =

40,000 =

40,000 =
40,000X = 16,000

X = 0.40

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

Direct Materials P 5.00

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

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

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

Rework Cost Account charged

a. P 200 Work In Process

b. P 200 Factory Overhead Control

c. P 500 Work In Process
d. P 500 Factory Overhead Control

Answer: D
Solution/Entry:

Factory Overhead Control 500

Payroll (2*100) 200

Factory overhead applied (200*150%) 300

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second-year-Cost Accounting 70 items

Bachelor of Science in Accountancy (University of Caloocan City)

StuDocu is not sponsored or endorsed by any college or university

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1. Which of the following statement(s) about just-in-time (JIT) inventory

management is (are) true?
I. The emphasis of JIT is on "pull" manufacturing.
II. Raw materials are purchased just in time to be used in production.
III. JIT is an inventory technique that focuses on reduction of both
inventory and related inventory costs.
A. I only.
B. II only.
C. III only.
D. I, II, and III.

2. Cost management systems tend to focus on an organization's:

A. machines.
B. employees.
C. activities.

D. customers.

3. The process of establishing objectives or goals for the firm and determining the means by
which they
will be met is:
a. controlling.
b. analyzing profitability.
c. planning.

d. assigning responsibility.

4. A(n) __________ requires estimating inventory balances during the year for interim financial

statements and shutting down operations to count all inventory items at the end of the
year.
a. periodic inventory system
b. inventory control account
c. perpetual inventory system
d. inventory cost method

A periodic inventory system requires a company to make estimates of inventory

balances throughout the year, and a complete physical count of

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inventory at the end of the year. A perpetual inventory system provides a continuous
record of purchases, issues and inventory balances. The inventory balances are
verified with periodic counts of selected inventory items throughout the year.

5. Witty Company, like most manufacturers, maintains a continuous record of

purchases, materials issued into production and balances of all goods in
stock, so that inventory valuation data is available at any time. This is an example of
a(n)
a. perpetual inventory system.

b. inventory control account.

c. periodic inventory system.
d. inventory cost method.

A perpetual inventory system maintains a continuous record of purchases, issues and

inventory
balances. A periodic inventory system requires a physical count of all inventory at
the end of the year and estimates of inventory balances throughout the year when
preparing interim financial statements.
6. The Mark Company’s payroll summary showed the following in November:
Sales department salaries 10,000
Supervisor salaries 20,000
Assembly workers’ wages 25,000
Machine operators’ wages 35,000
Maintenance workers’ wages 15,000

Accounting department salaries 5,000

What is the amount that would be included in direct labor in November?
a. 25,000
b. 60,000

c. 95,000
d. 120,000

Assembly workers and machine operators would be considered direct labor.

Assembly workers’ wages 25,000

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Machine operators’ wages 35,000

Total direct labor 60,000

7.

The Mark Company’s payroll summary showed the following in November:

Sales department salaries 10,000
Supervisor salaries 20,000
Assembly workers’ wages 25,000
Machine operators’ wages 35,000
Maintenance workers’ wages 15,000

Accounting department salaries 5,000

What is the amount that would be included in factory overhead in November?
a. 20,000
b. 35,000

c. 95,000
d. 120,000

The supervisors’ salaries and maintenance workers’ wages would be included in

factory overhead.
Supervisors’ salaries 20,000
Maintenance workers’ wages 15,000
Total direct labor 35,000

8. Factory overhead includes:

a. Indirect labor but not indirect materials.
b. Indirect materials but not indirect labor.
c. All manufacturing costs, except indirect materials and indirect labor.

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d. All manufacturing costs, except direct materials and direct labor.

Factory overhead includes all manufacturing costs except direct materials and direct
labor.
9. Factory overhead would include:

a. Wages of office clerk.

b. Sales manager’s salary.
c. Supervisor’s salary.

d. Tax accountant’s salary.

ANS: C

The supervisor’s salary is considered indirect labor because the supervisor is required
for the

manufacturing process, but does not work directly on the units being
manufactured. Indirect labor is

included in factory overhead. The office clerk’s wages, sales manager’s salary and
tax accountant’s
salary are marketing or administrative costs.

10. "Prime cost" refers to:

a. The sum of direct labor costs and all factory overhead costs.
b. The sum of direct material costs and direct labor costs.

c. All costs associated with manufacturing other than direct labor costs and direct material

costs.
d. Manufacturing costs incurred to produce units of output.
ANS: B

The term "prime cost" refers to the sum of direct materials costs and direct labor
costs.

11. The following data are from Burton Corporation, a manufacturer, for the month of
September:
Direct materials used 135,000
Supervisors’ salaries 6,000
Machine operators’ wages 200,000
Sales office rent and utilities 22,000
Machine depreciation 35,000

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Secretary to the Chief Executive Officer salary 3,000

Factory insurance 15,000

Compute the prime costs.

a. 344,000
b. 135,000
c. 335,000
d. 256,000
ANS: C

Prime costs include direct materials and direct labor. Of the salaries and wages listed, only the
wages of the machine operators would be considered direct labor as they are the only
employees listed who would actually work on the products themselves.

Direct materials used 135,000

Machine operators’ wages 200,000
Total prime costs 335,000

12. "Conversion costs" refers to:

a. The sum of direct labor costs and all factory overhead costs.

b. The sum of direct material costs and direct labor costs.

c. All costs associated with manufacturing other than direct labor costs.
d. Direct labor costs incurred to produce units of output.
ANS: A
The term "conversion costs" refers to the sum of direct labor costs and all factory
overhead costs.

13. The following data are from Biona Corporation, a manufacturer, for the month of
September:
Direct materials used 135,000
Supervisors’ salaries 6,000
Machine operators’ wages 200,000
Sales office rent and utilities 22,000
Machine depreciation 35,000

Secretary to the Chief Executive Officer salary 3,000

Factory insurance 15,000
Compute the conversion costs.

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a. 335,000
b. 209,000
c. 281,000
d. 256,000
ANS: D
Conversion costs include direct labor and factory overhead costs, including indirect
labor. Of the salaries and wages listed, only the machine operators are considered direct
labor as they are the only employees listed who would actually work on the products
themselves. The supervisors are considered factory overhead because their efforts are
essential to the manufacturing process, however they do not actually work on the
products themselves. The sales office costs and the salary of the secretary would be
marketing and administrative expenses as they do not contribute to the manufacturing
process.

Machine operators’ wages 200,000

Supervisors’ salaries 6,000
Machine depreciation 35,000
Factory insurance 5,000
Total conversion costs 256,000

14. Which of the following is not a cost that is accumulated in Work in Process? a. Direct
materials
b. Administrative expense

c. Direct labor
d. Factory overhead
ANS: B

Administrative expense is not a manufacturing cost, so it would not be included in

Work in Process.

15. Mina Company produced 20,000 blankets in June to be sold during the holiday season.
The
manufacturing costs were:
Direct materials 125,000
Direct labor 55,000
Factory overhead 60,000
Selling expense 25,000

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Administrative expense 30,000

The cost per blanket is:
a. 6.25.
b. 9.00.
c. 12.00.
d. 14.75.

ANS: C
Direct materials 125,000
Direct labor 55,000
Factory overhead 60,000

Total manufacturing costs 240,000 240,000 / 20,000

units = 12.00 cost per unit

16.

Mina Company produced 20,000 blankets in June to be sold during the holiday season.
The
manufacturing costs were:
Direct materials 125,000
Direct labor 55,000
Factory overhead 60,000

Management has decided that the mark-on percentage necessary to cover the
product’s share of selling and administrative expenses and to earn a satisfactory profit is
30%. The selling price per blanket should be:
a. 12.00.
b. 15.60.

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c. 23.60.
d. 31.20.
ANS: B
Direct materials 125,000
Direct labor 55,000
Factory overhead 60,000
Total manufacturing costs 240,000
240,000 / 20,000 units = 12.00 cost per unit
12.00 x 30% = 3.60 + 12.00 = 15.60

17. Statement of costs of goods manufactured shows: a.

Office supplies used in accounting office.
b. Deprecation of factory building.

c. Salary of sales manager.

d. Rent paid on finished goods warehouse.
ANS: B

The depreciation of the factory building is a cost necessary to

manufacture goods. The office supplies,

sales manager’s salary and warehouse rent are marketing and

administrative costs and would not be
included in the Statement of Cost of Goods Manufactured.

Data concerning the past fiscal year's operations (000's omitted) of the Stanley
Manufacturing
Company are presented below:
INVENTORIES
Beginning
Ending
Materials 90 85

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Work in process 50
65
Finished goods 100
90
Other data:
Direct materials used
$365
Total manufacturing costs charged to production during
the year (includes direct materials, direct labor, and factory
overhead) 680
Cost of goods available for sale
765

Selling and general expenses

250

Assuming Stanley does not use indirect materials, the cost of materials purchased during the
year
amounted to:
a. 455.
b. 450.
c. 365.

d. 360.
ANS: D

Materials purchased added to Materials inventory at the beginning of the month results
in the materials available for use. During the year, the materials are used or they remain
in the Materials inventory at the end of the year, so the total of materials used and
ending Materials inventory is also the total of the amount of materials available.
Therefore, the equation can be rearranged to compute the materials purchases as
follows:

Direct materials used 365

Add ending inventory of materials 85
Materials available during the year 450
Less beginning inventory of materials 90
Purchases of materials during the year 360

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19. Which of the following production operations would be most likely to employ a job order
system of cost accounting?
a. Candy manufacturing
b. Crude oil refining
c. Printing text books

d. Flour Milling

ANS: C

Printing would be most likely to employ a job order system of cost accounting due to
the number of custom jobs involved. The manufacture of candy, the vulcanizing of
rubber, and the refining of crude oil would normally be a continuous process of
producing like goods and would be accounted for under the process cost system.

20. An accounting firm wanting to track the costs of serving different clients may use a:

a. process cost system.

b. job order cost system.

c. cost control system.

d. standard cost system.
ANS: B

Professional firms use job order cost systems to track the costs of serving different
clients.

21. When should process costing techniques be used in assigning costs to products? a. In
situations where standard costing techniques should not be used
b. If products manufactured are substantially identical

c. When production is only partially completed during the accounting period d. If

products are manufactured on the basis of each order received
ANS: B

Process costing techniques should be used in assigning costs to products if the

product is composed of
mass-produced units that are substantially identical.

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22. An industry that would most likely use process costing procedures is:
a. Beverage.

b. Home Construction.
c. Printing.
d. Shipbuilding.
ANS: A

Beverage production usually consists of continuous output of homogeneous products

for which process costing is used. The other three industries would utilize job order
costing because each product or group of products is made to order.

23. In job order costing, the basic document for accumulating the cost of each job is the:

a. Job cost sheet.

b. Requisition sheet.
c. Purchase order.
d. Invoice.
ANS: A

In job order costing, the basic document to accumulate the cost of each job is the job
cost sheet.

24. Under a job order system of cost accounting, the dollar amount of the entry to transfer
inventory from Work in Process to Finished Goods is the sum of the costs charged to all jobs:

a. In process during the period.

b. Completed and sold during the period.
c. Completed during the period.

d. Started in process during the period.

ANS: C

When jobs are completed during the period, Finished Goods is debited and Work in
Process is credited for the cost of the completed jobs.

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25. Under a job order system of cost accounting, Cost of Goods Sold is debited and Finished
Goods is
credited for a:
a. Transfer of materials to the factory.
b. Shipment of completed goods to the customer.

c. Transfer of completed production to the finished goods storeroom.

d. Purchase of goods on account.
ANS: B

When completed goods are shipped to customers, Cost of Goods Sold is debited and
Finished Goods is credited.

26. An effective cost control system should include:

a. An established plan of objectives and goals to be achieved.
b. Regular reports showing the difference between goals and actual performance.
c. Specific assignment of duties and responsibilities.
d. All of these are correct.
ANS: D

An effective cost control system should include an established plan of goals and
objectives, reports comparing budgeted goals to actual performance, and
assignment of specific duties and responsibilities to operating personnel.

27. To effectively control materials, a business must maintain:

a. Limited access.

b. Combination of duties.
c. Safety stock.
d. None of these are correct.
ANS: A

To control materials a business must maintain limited access, segregation of duties,

and accuracy in recording.

28. Tenaj is the purchasing agent at Frameco Manufacturing. Her duties include vendor
selection and ordering materials. Due to a recent economic downturn and resulting cut backs,
Janet has been assigned the additional duty or preparing

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receiving reports after comparing the goods received to the purchase order. This is an example
of:
a. unlimited access to materials.
b. independence of assigned functions.

c. misappropriation of assets.
d. a lack of segregation of duties.
ANS: D

Because tenaj’s job as a purchasing agent involves preparing the purchase orders and
she is also comparing items received to the purchase orders, there is a lack of
segregation of duties. This increases the potential for the misappropriation of assets, but
there is not enough information given to determine that a misappropriation has indeed
occurred.

29. Barley Company hired a consultant to help improve its operations. The
consultant’s report stated that Barley’s inventory levels are excessive and cited several
negative consequences to Marley as a result.
Which of the following was not cited in the report?
a. Possible other uses for working capital now tied up in inventory
b. Production stoppages due to parts not being available

c. Higher property taxes and insurance costs

d. Large quantities of obsolete materials
ANS: B

It is important to maintain inventories of sufficient size and variety to meet production

needs. However, if Barley’s inventories are excessive, it is likely that parts are available
for production, but the excess inventory is resulting in higher costs related to holding
those items such as property taxes and insurance and potential losses from
obsolescence or deterioration. Funds invested in inventories could be used for other
purposes.

30. Sully Company uses 3,000 yards of canvas each day to make tents. It usually
takes ten days from the time Sully orders the material to when it is received. If
Sully’s desired safety stock is 12,000 yards, what is Sully’s order point?
a. 12,000 yards
b. 21,000 yards

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c. 30,000 yards
d. 42,000 yards
ANS: D
3,000 (daily usage) x 10 (lead time) 30,000
Safety stock 12,000
Order point 42,000

31. What is the objective of the economic order quantity (EOQ) model for inventory? a. To
minimize order costs or carrying costs, whichever are higher

b. To minimize order costs or carrying costs and maximize the rate of inventory turnover

c. To minimize the total order costs and carrying costs over a period of time

d. To order sufficient quantity to economically meet the next period's demand

ANS: C

If the demand for the product can be determined because it is predictable, the essence
of any EOQ model for inventory is to minimize the total order costs and also minimize
the total carrying costs.

32. Expected annual usage of a particular raw material is 1,200,000 units, and standard order
size is 10,000 units. The invoice cost of each unit is 145, and the
cost to place one purchase order is 105. The estimated annual order cost is:
a. 12,000.
b. $7,400.
c. 12,600.

d. 800,000.
ANS: C
Annual order cost = Number of orders x Per order cost
= 1,200,000 units x 105
10,000 units
= 120 orders x 105

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= 12,600

33. Carrying costs would include all of the following except:

a. Warehouse rent.
b. Inspection employees’ wages.
c. Losses due to obsolescence.
d. Property taxes.
ANS: B

Costs related to the purchase and receipt of materials are considered order costs while
costs related to the storage and maintenance of inventory are considered storage costs.
Inspection would typically happen upon receipt of goods making this an order cost.

34. The following data pertains to Western Company’s materials inventory:

Number of pounds required annually 16,000
Cost of placing an order 20
Annual carrying cost per pound of material 4
What is Western Company’s EOQ?

a. 4,000 pounds
b. 800 pounds
c. 400 pounds

d. 200 pounds

EOQ = √2x20x6000
4

35. The form used to notify the purchasing agent that additional materials are needed is
known as a:
a. Purchase order.
b. Vendor's invoice.
c. Receiving report.
d. Purchase requisition.
ANS: D

The storeroom keeper prepares a purchase requisition to notify the purchasing

agent that additional materials are needed.

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36. The inventory method which results in the most recent costs being assigned to inventory
on hand at the end of the period is:
a. First-in, first-out.

b. Last-in, first-out.
c. Last-in, last-out.
d. Moving average.
ANS: A

First-in, first-out (FIFO) results in the most recent costs being assigned to ending
inventory because
the oldest costs are assigned to issues first.

37. The inventory method which results in the prices paid for the earliest purchases being
assigned to
inventory on hand at the end of the period is:
a. First-in, first-out.
b. Last-in, first-out.

c. Last-in, last-out.
d. Moving average.
ANS: B

Last-in, first-out (LIFO) results in the oldest costs being assigned to ending
inventory because the most recent costs are assigned to issues first.

38. In a period of rising prices, the use of which of the following cost flow methods would
result in the
lowest tax liability?
a. FIFO
b. LIFO

c. Weighted average cost

d. Moving average cost

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ANS: B
Under the LIFO method, the most recent purchases, which were the most expensive,
would be

considered to be the goods sold. This would result in higher cost of goods sold, thus
lower gross
margins which in turn would result in lower income taxes.

39. Inventory levels for firms using JIT inventory systems compared to firms not using JIT
will be:
a. Higher for both work in process and finished goods.
b. Higher for work in process and finished goods but lower for raw materials.
c. Lower for raw materials, work in process, and finished goods.

d. Higher for finished goods but lower for raw materials and work in process.
ANS: C

Manufacturers using just-in-time inventory systems will maintain lower inventory levels
for all three types of inventories. Materials are delivered in time to be placed in
production. Work in Process inventories are minimized by eliminating inventory buffers
between work cells and Finished Goods inventories are eliminated because items are
produced as customers order them.

40. Just-in-time production techniques:

a. Require inventory buffers between work centers.
b. Were first utilized by U.S. manufacturers and later exported to Japan.

c. Produce goods for inventory with the hope that demand for these goods will then be
created.

d. Require a high degree of cooperation and coordination between supplier

and manufacturer.
ANS: D

A just-in-time inventory system is a “pull” inventory system ultimately driven by

customer demand so

goods are not produced in the hope of selling them. In addition, inventory buffers are
minimized as

production on units in one manufacturing cell is started only when the subsequent
operation requests

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them. For a just-in-time inventory system to be effective, suppliers must be in close

proximity to

customers to enable the delivery of raw materials to coincide with

production's need for them.

41. The accounting system used with JIT manufacturing is called:

a. Backflush costing.

b. The push system.

c. Perpetual inventory costing.
d. First-in, first-out.
ANS: A
The accounting system used with JIT is called backflush costing.

42. At a plant where car doors were manufactured, all of the following would be classified
as direct labor except:
a. Machinists.
b. Assembly workers.
c. Maintenance personnel.

d. Painters.
ANS: C

Maintenance workers, while integral to the manufacturing process as they keep the
machinery maintained, are not direct laborers because they do not actually add value to
the product. Machinists, assembly workers and painters would all add value to the
manufacture of a car door.

43. All of the following are characteristics of hourly wage plans except:
a. They provide no extra recognition for doing more than the minimum required.
b. They are easy to apply.
c. They establish a definite rate per hour for each employee.

d. They encourage employees to sacrifice quality in order to maximize earnings.

ANS: D

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Hourly wage plans pay a fixed rate per hour, so they are easy to apply, but they do not
provide any incentive to do more than what is required, nor do they encourage
employees to work so fast as to sacrifice quality.

44. Which of the following costs would be included in factory overhead in the
manufacture of a student’s desk?

a. The wages of the operator of the machine that bends the metal legs of the desk into shape.

b. The wages of the forklift operator who moves finished desks to the finished
goods warehouse.

c. The cost of the plastic used to form the writing surface.

d. The wages of the worker who assembles the components.
ANS: B

The plastic used to form the writing surface of the desk is a direct material as it can be
traced directly to the finished product. The wages of the machine operator and the
assembly worker are direct labor costs as they add value to the product. The wages of
the forklift operator would be classified as indirect labor as s/he does not actually work
on the products themselves. Indirect labor is included in factory overhead.

45. Consider the following costs:

I. The cost of electricity which is used to power machinery and light the plant.
II. Depreciation on the building which houses both the factory and the sales
office.
Which of the following statements is true?
a. Only statement I is an example of a semivariable cost.

b. Only statement II is an example of a semivariable cost.

c. Both statements I and I are examples of semivariable costs.
d. Neither statement I nor II is an example of a semivariable cost.

ANS: A

The electricity cost has both fixed and variable components, making it a semivariable
cost. The building depreciation is a fixed cost which has both manufacturing and selling
cost components.

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46. The method of analyzing the behavior of semivariable costs that relies heavily on the ability
of an observer to detect a pattern of cost behavior by reviewing past cost and volume data is
the:
a. High-low method.
b. Method of least squares.
c. Scattergraph method.
d. Observation method.
ANS: D

The observation method, also called the account analysis method, is the method of
analyzing the behavior of semivariable costs that relies heavily on the ability of an
observer to detect a pattern of cost behavior by reviewing past cost and volume data.

47.

Victoria is a budget analyst at Young Industries. She used the least squares regression
method to separate the plant’s monthly utilities cost into its fixed and variable components.
The results were as follows:
Y = 3,250 + .054 X
X = the number of units produced
R² = .892
How should Victoria interpret the R² of .892?

a. The equation is a better predictor of fixed costs than of variable costs 89.2% of the time.

b. The equation will accurately predict utility costs 89.2% of the time.
c. Fixed costs make up 89.2% of the total semi-variable cost in any given month.

d. The number of units produced explains 89.2% of the variation in the plant utilities
cost.
ANS: D
R²

2 refers to how much of the variability in the dependent variable, in this case the
utilities cost, is explained by changes in the dependent variable, which is the number of
units produced.

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48. A predetermined factory overhead rate is computed by dividing a.

Actual overhead cost by actual activity.

b. Actual overhead cost by budgeted activity. c.

Budgeted overhead by actual activity.
d. Budgeted overhead by budgeted activity.
ANS: D

Overhead needs to be allocated through a period of time. Actual costs and activity per
period are not known until the period is done.

49. Gerbre Manufacturing uses the direct labor cost method for applying factory overhead to
production. The budgeted direct labor cost and factory overhead for
the previous fiscal year were 1,000,000 and 800,000, respectively. Actual direct
labor cost and factory overhead were 1,100,000 and 825,000, respectively.
What was Gerbre’s predetermined factory overhead rate?
a. 80%

b. 125%
c. 75%
d. 133%
ANS: A

Predetermined factory overhead rate = Budgeted factory overhead Budgeted

direct labor cost
= 800,000/1,000,000 = 80%

50. Activity-based costing considers non-volume-related activities that create costs such as:

a. Direct labor usage.

b. Machine operations.

c. Consumption of indirect materials and energy usage. d.

Machine setups and product design changes. ANS: D

(D) Activity-based costing considers non-volume related activities that create

costs such as machine setups and product design changes.

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51. To successfully employ an ABC system, a company must first identify:

a. Non-volume related activities in the factory that create costs.

b. Cost drivers.
c. Cost pools.
d. Overhead allocation rates.
ANS: A

To successfully employ an activity-based costing system, a company must first identify

non-volume related activities in the factory that create costs. Once these have been
identified, cost drivers and cost pools can be identified in order to calculate overhead
calculation rates.

52. The Yowens Company uses the machine hour method of applying factory overhead to
production. The budgeted factory overhead last year was 200,000, and there were 40,000
machine hours budgeted. Actual machine hours incurred during the period were 38,000, and
actual factory overhead was 215,000. What was the amount of under- or overapplied factory
overhead?
a. 10,000 underapplied
b. 15,000 underapplied
c. 25,000 underapplied

d. 10,000 overapplied
ANS: C
Predetermined overhead rate = Budgeted factory overhead
Budgeted machine hours
$200,000/ 40,000 hours = 5/ machine hour
Applied factory overhead = 38,000 x 5 190,000
Actual factory overhead incurred 215,000
Underapplied factory overhead (25,000)

53. Process costing techniques should be used in assigning costs to products:

a. If the product is manufactured on the basis of each order received.
b. In all manufacturing situations.
c. When production is only partially completed during the accounting period.
d. If the product is composed of mass-produced homogeneous units.
ANS: D

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Process costing techniques should be used in assigning costs to products if the

product is composed of mass-produced homogeneous units.

54. All of the following could be included in the cost of a product located in the final
production department of a multi- step process except:
a. The costs of materials, labor and overhead identifiable with that department.
b. Marketing and distribution costs.

c. The costs of service departments that have been allocated to production

departments.
d. The costs of prior production departments.
ANS: B
Marketing and distribution costs are not product costs.

55. The average cost method of process costing differs from the FIFO method of process
costing in that the average cost method:

a. Requires that ending work in process inventory be stated in terms of equivalent units of
production.
b. Can be used under any cost-flow assumption.

c. Does not consider the degree of completion of beginning work in process

inventory when computing equivalent units of production.

d. Considers the ending work in process inventory only partially complete.

ANS: C

The average cost method of process costing does not consider the degree of
completion of beginning work in process inventory when computing equivalent units of
production, while the FIFO method does.

56. When two products are produced during a common process, what is the factor that
determines whether the products are joint products or one principal product and a by-product?

a. Potential marketability for each product

b. Amount of work expended in the production of each product
c. Management policy
d. Relative total sales value
ANS: D

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The relative total sales value is the determining factor in deciding whether a product is a
joint product or a by-product. Products with relatively little value are by-products.

57. If a company produces two products, A and B, from a joint process, and B requires
additional processing after the split-off in order to be salable, how is the joint cost allocated
to B determined?
a. The costs of the additional processing are ignored in allocating joint costs.

b. The costs of the additional processing are subtracted from the joint costs allocated
to B.

c. The relative sales value used to allocate the joint cost are determined after the
costs of further processing are subtracted from the ultimate sales value of B.

d. None of these are correct.

ANS: C

The relative sales value used to determine joint costs is determined by subtracting the
costs of further processing from the ultimate sales value of B.

58. Which of the following is most likely to be accounted for as a by-product? a.

Heating oil resulting from processing crude oil at a refinery.
b. Cream resulting from processing raw milk at a dairy.
c. Sawdust resulting from processing lumber at a lumber mill.

d. Ground beef resulting from processing beef at a meat packer.

ANS: C

Of the choices above, it is most likely that sawdust would have very little sales value
compared to the lumber being processed.

59. Which of the following correctly demonstrates the comparison of the four-variance
method of factory overhead analysis to the two-variance method of factory overhead
analysis?

a. The sum of the spending and budget variances in the four-variance method is equal to
the controllable variance in the two-variance method.

b. The sum of the budget, spending and efficiency variances in the four-variance
method is equal to the controllable variance in the two-variance method.

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c. The sum of the spending, efficiency and volume variances in the four-variance method is
equal to the controllable variance in the two-variance method.

d. The budget variance in the four-variance method is equal to the controllable variance
in the two-variance method.
ANS: B

The sum of the variable spending and efficiency variances and the fixed budget
variance in the four variance method is equal to the controllable variance in the two-
variance method.

60. In the three-variance method of factory overhead analysis, what standard cost variance
represents the difference between actual factory overhead incurred and budgeted factory
overhead based on actual hours worked?
a. Volume variance
b. Efficiency variance
c. Budget (spending) variance

d. Quantity variance
ANS: C

The spending (budget) variance represents the difference between actual factory
overhead incurred and budgeted factory overhead based on actual hours worked.

61. In a three-variance method of factory overhead analysis, the variance that measures the
difference between the factory overhead applied and the actual hours worked multiplied by the
standard rate is the:
a. Budget variance.
b. Capacity variance.
c. Spending variance.
d. Efficiency variance.
ANS: D

The factory overhead efficiency variance in a three-variance method of factory

overhead analysis is the difference between the factory overhead applied and the
actual hours worked multiplied by the standard rate. The budget or spending factory
overhead variance is the difference between the actual overhead incurred and the
budgeted overhead for the actual hours worked. The capacity factory overhead
variance is the difference between the budgeted overhead for the actual hours worked
and the actual hours worked multiplied by the standard rate.

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62. One possible explanation for a company that experiences a favorable labor efficiency
variance, but an unfavorable labor rate variance could be:
a. The company paid the workers overtime.
b. The company hired more experienced workers.

c. The company purchased materials that were hard to work with.

d. The workers “goofed around” and wasted time.
ANS: B

If a company hires works that are more experienced, the average wage rate could be
higher than the standard rate and they could complete the tasks more quickly resulting
in a favorable labor efficiency variance, but an unfavorable labor rate variance. The
overtime premium paid to workers is usually charged to overtime, so this should not
impact the labor rate variance. Situations c and d would be more likely to result in
unfavorable labor efficiency variances.

63. All of the following are features of a standard cost system except: a.
Standards change as conditions change.

b. Variances may be determined more often than monthly to allow for more timely action.

c. Standards are based on estimates.

d. The company determines the actual cost of manufacturing a unit. ANS: D

When using a standard cost system, the company will not determine the actual cost of
manufacturing a unit.

64. Examples of service businesses that would use job order costing would include all of the
following except:
a. an accounting firm that has audit clients of various sizes and complexities.
b. a “quick oil change” shop that offers only basic maintenance services.

c. an automotive body repair shop specializing in collision repair.

d. a high end salon offering hair, manicure and spa services.
ANS: B

The accounting firm, collision repair shop and the salon would have customers
(jobs) with varying complexities and sizes. Job order costing would be beneficial in
these cases. The oil change shop that offers only

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basic maintenance services such as oil changes, would not have as many
complexities among its customers as the others.

65. A report that compares the budgeted costs for the job to the actual costs incurred
and indicates the variances is a:
a. Budget analysis.
b. Job cost sheet.
c. Cost analysis.
d. Cost performance report.
ANS: D

A cost performance report compares budgeted cost to actual costs incurred

for a job, and indicates the variances.

66. The practice of taking overhead costs previously in a single indirect cost pool and
separating them into a number of homogeneous cost pools with separate cost drivers for
each pool is:
a. Peanut-butter costing.
b. Process costing.
c. Activities-based costing.

d. Job costing.
ANS: C

Activities-based costing is the process of separating overhead costs into a number of

homogeneous cost pools with separate cost drivers for each pool.

67. Which of the following is a more descriptive term of the type of cost accounting often
called "direct costing"?
a. Prime costing
b. Out-of-pocket costing
c. Variable costing

d. Relevant costing
ANS: C

Variable costing may be considered a more descriptive term than direct costing
because only the variable costs are used to determine a product's cost.

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You have recently graduated from a university and have accepted a position with Villar
Company, the manufacturer of a popular consumer product. During your first week on the job,
the vice president has been favorably impressed with your work. She has been so impressed, in
fact, that yesterday she called you into her office and asked you to attend the executive
committee meeting this morning for the purpose of leading a discussion on the variances
reported for last period. Anxious to favorably impress the executive committee, you took the
variances and supporting data home last night to study.

On your way to work this morning, the papers were laying on the seat of your new, red
convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the
papers and blew them over the edge of the bridge and into the stream below. You managed to
retrieve only one page, which contains the following information:

Standard Cost Summary

Direct materials, 6 pounds at P3 P18.0
0
Direct labor, 0.8 hours at P5 4.00
Variable overhead, 0.8 hours at P3 2.40
Fixed overhead, 0.8 hours at P7 5.60
P30.0
0
Total VARIANCES REPORTED

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Standard Price Spendin Quantity Volume

Cost or g or or
Rate Budget Efficiency
Direct P405,000 P6,90 P9,000 U
materials 0F
Direct labor 90,000 4,850 7,000 U
U
Variable 54,000 P1,300 F ?
overhead
Fixed 126,000 500 F P14,000
overhead U
Applied to Work in process during the period

You recall that manufacturing overhead cost is applied to production on the basis of direct
labor-hours and that all of the materials purchased during the period were used in production.
Since the company uses JIT to control work flows, work in process inventories are insignificant
and can be ignored.

It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that
to avoid looking like a bungling fool you must somehow generate the necessary “backup”
data for the variances before the meeting begins. Without backup data it will be impossible
to lead the discussion or answer any questions.

68. How many pounds of direct materials were purchased and used in the
production of 22,500 units?
A. 138,000 lbs.

C. 135,000 lbs.
B. 132,000 lbs.
D. 137,300 lbs.

SQ allowed (22,500 x 6) 135,000

Unfavorable usage variance 3,000
Actual quantity of materials 138,000

69. What was the actual cost per pound of material? A.

P3.00

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C. P2.95

B. P3.05
D. P3.10
Answer: C
Actual quantity purchased and used at standard price (138,000 x 3)
414,000
Favorable price variance 6,900
Actual Quantity @ Actual Price 407,100
Actual Price (407,100 ÷ 138,000) P2.95

70. How many actual direct labor hours were worked during the period? A.
18,000
C. 19,400

B. 16,600
D. 18,970
Answer: C
SH@SR 90,000
Efficiency Variance 7,000
AH@SR 97,000

Actual hours (97,000 ÷ 5) 19,400

71. How much actual variable manufacturing overhead cost was incurred during the
period?
A. P55,300
C. P56,900
B. P58,200
D. P59,500
Answer: D
AH @ SR (19,400 x 3) 58,200
Spending variance 1,300

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Actual Variable Overhead 59,500

72. What is the total fixed manufacturing overhead cost in the company’s flexible budget?

A. P112,500
C. P139,500
B. P140,000

D. P125,500
Answer: B
Applied Fixed OH 126,000
Underapplied fixed overhead 14,000
Budgeted fixed overhead 140,000
73. What were the denominator hours for last period?
A. 18,000 hours C. 20,000 hours
B. 22,000 hours D. 25,000 hours

Answer: C
Denominator or Budgeted Hours: (140,000 ÷ 7) = 20,000

74. Fireout Company manufactures fire hydrants in Bulacan. The following information pertains
to operations during the month of May:
Processing hours (average per batch) 8.0
Inspection hours (average per batch) 1.5
Waiting hours (average per batch) 1.5
Move time (average per batch) 1.5
Units per batch 20 units
The manufacturing cycle efficiency (MCE) is:
A. 72.7%
B. 64.0%
C. 36.0%
D. 76.0%

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MCE = Value Added Hours ÷ Throughput Time

Processing hours 8.00
Inspection hours 1.50
Waiting time 1.50
Move time 1.50
Throughput time 12.50

MCE (8.00 ÷ 12.50) 64%

Questions 75 through 78 are based on Darf Company, which applies overhead on the basis of
direct labor hours. Two direct labor hours are required for each product unit. Planned
production for the period was set at 9,000 units. Manufacturing overhead is budgeted at
P135,000 for the period, of which 20% of this cost is fixed. The 17,200 hours worked during
the period resulted in production of 8,500 units. Variable manufacturing overhead cost incurred
was P108,500 and fixed manufacturing overhead cost was P28,000. Darf Company uses a
four variance method for analyzing manufacturing overhead.

75. The variable overhead spending variance for the period is

A. P5,300 unfavorable C. P6,300 unfavorable
B. P1,200 unfavorableD. P6,500 unfavorable
Actual variable overhead 108,500
Budgeted VOH at actual hours (17,200 x 6) 103,200
Variable overhead spending variance, UNF 5,300
VOH rate per hour (135,000 x 0.80) ÷ 18,000 hoursP6.00

76. The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 unfavorableC.P1,200 unfavorable
B. P1,500 unfavorableD.P6,500 unfavorable
Answer: C
The computation of variable overhead efficiency variance involves the comparison of
the actual hours and standard hours allowed by actual production.

(17,200 – 17,000) x P6 1,200 UNF

Standard hours allowed: 8,500 x 2 17,000

77. The fixed overhead budget (spending) variance for the period is

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A. P6,300 unfavorableC. P2,500 unfavorable

B. P1,500 unfavorableD. P1,000 unfavorable

Answer: D
The amount of fixed overhead budget (spending) variance is calculated by
subtracting from the actual fixed overhead the amount of budgeted fixed overhead.

Actual fixed overhead 28,000

Budgeted fixed overhead (135,000 x 0.2) 27,000
Unfavorable fixed overhead budget variance 1,000

78. The fixed overhead volume (denominator) variance for the period is A. P 750
unfavorableC. P2,500 unfavorable
B. P1,500 unfavorable D. P1,000 unfavorable
Answer: B

The amount of volume variance (denominator or over/underapplied

fixed overhead variance) is calculated by comparing the budgeted fixed
overhead and fixed overhead applied to production.
Budgeted fixed overhead (135,000 x 0.2) 27,000
Applied fixed overhead (8,500 x 3) 25,500
Underapplied (unfavorable) volume variance 1,500
Alternative calculation: (9,000 – 8,500) x 3 1,500
Fixed overhead per unit (27,000 ÷ 9,000) 3

On May 1, Dandy Company had a work-in-process inventory of 10,000 units. The units were
100% complete for material and 30% complete for conversion, with respective costs of
30,000 and 1,850.
During the month, 150,000 units were completed and transferred to finished goods. The May
31 ending work-in-process inventory consisted of 10,000 units that were 100% complete with
respect to materials and 80% complete with respect to conversion.

Costs added during the month were 330,000 for materials and 503,750 for
conversion.

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79. Using the weighted-average method, calculate the total equivalent units for material

A. 160,000
B. 150,000
C. 140,000
D. 130,000
80. Using the weighted-average method, calculate total equivalent units for
conversion
A. 158,000
B. 150,000
C. 148,000
D. 140,000
81. Using the weighted-average method, calculate the cost per equivalent unit for material

A. 2.25
B. 2.50
C. 1.75
D. 1.50

82. Using the weighted-average method, calculate the cost per equivalent unit for
conversion.
A. 3.20
B. 3.25
C. 3.30
D. 3.35

83. Using the weighted-average method, calculate the cost transferred to finished goods.

A. 817,500
B. 827,500
C. 837,500
D. 847,500
84. Using the weighted-average method, calculate the cost ending work in process
A. 48,100
B. 49,200
C. 50,300
D. 51,400
Answer:

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. Equivalent units:
Direct
Material Conversio
n
Transferred to finished goods 150,000 150,000
Work in process, May 31 10,000 8,000
Total 160,000 158,000
. Cost per equivalent unit:

Work in process, May 1 30,000 1,850

Costs added during May 330,00 503,750
0
Total costs 360,000 505,600
Equivalent units 160,000 158,000
Cost per equivalent unit 2.25 3.20
. Cost of completed production:

Material (150,000 x 2.25) 337,500

Conversion (150,000 x 3.20) 480,000
Total 817,500

. Cost of work in process at May 31:

Material (10,000 x 2.25) 22,500
Conversion (8,000 x 3.20) 25,600
Total 48,100

85-90Edwards Company had a beginning work-in-process inventory of 30,000 units on June

1. These units contained 120,000 of direct materials and 272,000 of conversion cost.
The following data relate to activity during June:

Production completed (units) 70,000

Ending work in process, 60% complete 20,000
(units)
Direct materials used 258,000
Conversion cost 695,600

Edwards uses a weighted-average process-costing system. All materials are added at

the start of manufacturing; in contrast, conversion cost is incurred evenly throughout
production.

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85. Using the weighted-average method, calculate the total equivalent units for material

A. 90,000
B. 80,000
C. 70,000
D. 60,000
86. Using the weighted-average method, calculate total equivalent units for
conversion
A. 82,000
B. 80,000
C. 72,000
D. 70,000
87. Using the weighted-average method, calculate the cost per equivalent unit for material

A. 4.20
B. 4.50
C. 4.75
D. 4.25
88. Using the weighted-average method, calculate the cost per equivalent unit for
conversion.
A. 11.20
B. 11.40
C. 11.60
D. 11.80

89. Using the weighted-average method, calculate the cost of completed

production.
A. 1,120,000 B.
1,220,500 C.
1,230,500 D.
1,247,500

90. Using the weighted-average method, calculate the June 30 work in process
A. 220,600
B. 215,600
C. 200,600
D. 225,600

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Equivalent units:
Direct
Material Conversi
on
Transferred to finished goods 70,000 70,000
Work in process, June 30 20,000 12,000
Total 90,000 82,000
Cost per equivalent unit:

Work in process, June 1 120,000 272,000

Costs added during June 258,00 695,600
0
Total costs 378,000 967,600
Equivalent units ÷ ÷ 82,000
90,000
Cost per equivalent unit 4.20 11.80

Cost of completed production:

Material (70,000 x 4.20) 294,000
Conversion (70,000 x 11.80) 826,000
Total 1,120,000
Cost of work in process at June 30:

Material (20,000 x 4.20) 84,000

Conversion (12,000 x 11.80) 141,600
Total 225,600

Heartland Bank & Trust operates in a very competitive marketplace, using a traditional labor-hour based system
to determine the cost of processing its mortgage loans. Recently, the firm explored a switch to activity-based
costing to determine the accuracy of its previous ways. The following information is available:
Activity Cost Driver Driver
Units
Application 900,000 Applications 4,00
processing 0
Loan underwriting 800,000 Underwriting 16,000
hours
Loan closure 880,00 Legal hours 8,00
0 0
Total 2,580,000

Two loan applications were originated and closed during the year. No. 7439 consumed
3.5 hours in loan underwriting and 1.5 hours in loan closure, for a total of 5.0 hours.
No. 7809 also required 5.0 hours of time, subdivided as follows: 2.0 hours in loan
underwriting and 3.0 hours in loan closure.

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91. Use an activity-based-costing system and determine the cost of

processing
A. 228
B. 230
C. 225
D. 235
92. Use an activity-based-costing system and determine the cost of
underwriting
A. 70
B. 60
C. 50
D. 40
93. Use an activity-based-costing system and determine the cost of closing the two
loan applications
A. 120
B. 110
C. 100
D. 90

94. Compute the cost of processing the two loans if Heartland uses the traditional
labor-hour-based system. Conversations with management found that, on average,
each application took nine labor hours of processing time, excluding underwriting and
closure.
A. 565; 655 B.
665; 555 C.
555; 665 D.
565; 665

Answer:
A. Cost pool rates:
Application processing: 900,000 ÷ 4,000 = 225 per application
Loan underwriting: 800,000 ÷ 16,000 = 50 per underwriting hour
Loan closure: 880,000 ÷ 8,000 = 110 per legal hour

Application no. 7439: Application 225) + underwriting (3.5 x 50 = 175) + closure (1.5 x 110
= 165) = 565

Application no. 7809: Application (225) + underwriting (2.0 x 50 = 100) + closure (3.0 x 110 =
330) = 655

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96-100 Lennox Industries manufactures two products: A and B. A review of the

company's accounting records revealed the following per-unit costs and
production volumes:
A B
Production volume (units) 2,500 5,00
0
Direct material $ 40 $ 60
Direct labor:
2 hours at $12 24
3 hours at $12 36
Manufacturing overhead:
2 hours at $93 186
3 hours at $93 27
9

Manufacturing overhead is currently computed by spreading overhead of

$1,860,000 over 20,000 direct labor hours. Management is considering a shift to
activity-based costing in an effort to improve the firm's accounting procedures, and
the following data are available:
Cost Driver Volume
Cost Pool Cost Cost Driver A B Total
Setups $ Number of 100 20 120
240,000 setups
General factory 1,500,00 Direct labor 5,000 15,00 20,000
0 hours 0
Machine 120,0 Machine 2,200 800 3,000
processing 00 hours
$1,860,0
00

Lennox determines selling prices by adding 40% to a product's total cost.

96.Compute the per-unit cost of product B by using Lennox's current costing

procedures.
A. 375
B. 365
C. 355
D. 345
97.Compute the selling price of product B by using Lennox's current costing
procedures.
A. 525
B. 511

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C. 497
D. 483
98. Compute the total per-unit cost under activity-based costing.
A. 335.4
B. 336.2
C. 337 D.
337.2
99. Compute the total selling price under activity-based costing.
A. 496.56
B. 470.68
C. 471.8
D. 472.08

100. Compute B's per-unit overhead cost of product B if the company switches to activity-
based costing.
A. 1,198,000
B. 1,197,000
C. 1,199,000

D. 1,196,000
Direct material 60
Direct labor 36
Manufacturing overhead 279
Per-unit cost 375
Markup (375 x 40%) 150
Selling price 525

Setups: 240,000 ÷ 120 setups = 2,000 per setup

General factory: 1,500,000 ÷ 20,000 direct labor hours = 75 per direct labor hour

Machine processing: 120,000 ÷ 3,000 machine hours = 40 per machine hour

Overhead cost for product B:

Setups: 20 setups x 2,000 40,000
General factory: 15,000 labor hours x 75 1,125,000
Machine processing: 800 machine hours x 40 32,00
0
Total 1,197,000

Overhead per unit: 1,197,000 ÷ 5,000 units =

239.40

Direct material 60.00

Direct labor 36.00
Manufacturing overhead 239.40
Per-unit cost 335.40
Markup (335.40 x 40%) 134.16
Selling price 469.56

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