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Chapter 3

Systems Design: Job-Order Costing

True/False
1.
T
Easy

Job-order costing would be more likely to be used than process costing


in situations where many different products or services are produced
each period to customer specifications.

2.
F
Easy

Job-order costing is used in manufacturing companies and process


costing is used in service firms.

3.
F
Easy

In a job-order costing system, costs are traced to departments and


then allocated to units of product using an average process.

4.
F
Medium

Normally a job cost sheet is not prepared for a job until after the
job has been completed.

5.
F
Easy

Job cost sheets contain entries for actual direct material, actual
direct labor, and actual manufacturing overhead cost incurred in
completing a job.

6.
F
Medium

In order to improve the accuracy of unit costs, most companies


recompute the predetermined overhead rate each month.

7.
T
Medium

The following journal entry would be made to apply overhead cost to


jobs in a job-order costing system:
Work in Process ............... XXX
Manufacturing Overhead ...

XXX

8.
T
Easy

When the predetermined overhead rate is based on direct labor-hours,


the amount of overhead applied to a job is proportional to the amount
of actual direct labor-hours incurred on the job.

9.
F
Medium

When completed goods are sold the transaction is recorded as a debit


to Cost of Goods Sold and a credit to Work in Process.

10.
F
Hard

The most common accounting treatment of underapplied manufacturing


overhead is to transfer it to the Manufacturing Overhead control
account.

11.
F
Medium

In job-order costing, the Work in Process inventory account contains


the actual costs of direct labor, direct materials, and manufacturing
overhead incurred on partially completed jobs.

12.
T
Easy

Nonmanufacturing costs are expensed as incurred, rather than going


into the Work in Process account.

13.
F

A credit balance in the Manufacturing Overhead account at the end of


the year means that overhead was underapplied.

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Medium
14.
T
Easy

Indirect materials are not charged to a specific job but rather are
included in manufacturing overhead.

15.
T
Easy

The labor time ticket contains a detailed summary of the direct and
the indirect labor hours of an employee.

Multiple Choice
16.
B
Easy

Which of the following companies would be most likely to use a joborder costing system rather than a process costing system?
a. fast food restaurant
b. shipbuilding
c. crude oil refining
d. candy making

17.
B
Easy
CMA
adapted

The computation of unit product costs involves an averaging process


in:

18.
A
Easy

Work in Process is a control account supported by detailed cost data


contained in:
a. job cost sheets.
b. the Manufacturing Overhead account.
c. the Finished Goods inventory account.
d. purchase requisitions.

19.
D
Medium

In job-order costing, all of the following statements are correct with


respect to labor time and cost except:
a. time tickets are kept by employees showing the amount of
work
on specific jobs.
b. the job cost sheet for a job will contain all direct labor
charges to that particular job.
c. labor cost that can be traced to a job only with a great
deal
of effort is treated as part of manufacturing overhead.
d. a machine operator performing routine annual maintenance
work
on a piece of equipment would charge the maintenance time to a
specific job.

20.
A
Medium

In a job order cost system, the journal entry to record the


application of overhead cost to jobs would include:
a. a credit to the Manufacturing Overhead account.
b. a credit to the Work in Process inventory account.
c. a debit to Cost of Goods Sold.
d. a debit to the Manufacturing Overhead account.

21.
C
Medium

In a job-order cost system, the use of indirect materials would


usually be recorded as a debit to:
a. Raw Materials.
b. Work in Process.
c. Manufacturing Overhead.
d. Finished Goods.

a.
b.
c.
d.

Job-order costing
Yes
Yes
No
No

ManagerialAccounting,9/e

Process costing
No
Yes
Yes
No

51

22.
A
Easy
CPA
adapted

In a job order cost system, the use of direct materials previously


purchased usually is recorded as a debit to:
a. Work in Process inventory.
b. Finished Goods inventory.
c. Manufacturing Overhead.
d. Raw Materials inventory.

23.
D
Easy

In a job-order cost system, direct labor costs usually are recorded


initially with a debit to:
a. Manufacturing Overhead.
b. Finished Goods inventory.
c. Direct Labor Expense.
d. Work in Process.

24.
A
Medium

If a company applies overhead to jobs on the basis of a predetermined


overhead rate, a credit balance in the Manufacturing Overhead account
at the end of any period means that:
a. more overhead cost has been charged to jobs than has been
incurred during the period.
b. more overhead cost has been incurred during the period than
has
been charged to jobs.
c. the amount of overhead cost charged to jobs is greater than
the
estimated cost for the period.
d. the amount of overhead cost charged to jobs is less than the
estimated overhead cost for the period.

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25.
D
Medium

In a job order cost system, the amount of overhead cost that has been
applied to a job that remains incomplete at the end of a period:
a. is deducted on the Income Statement as overapplied overhead.
b. is closed to Cost of Goods Sold.
c. is transferred to Finished Goods at the end of the period.
d. is part of the ending balance of the Work in Process
inventory
account.

26.
B
Hard

The Work in Process inventory account of a manufacturing company shows


a balance of P2,400 at the end of an accounting period. The job cost
sheets of the two uncompleted jobs show charges of P400 and P200 for
direct materials, and charges of P300 and P500 for direct labor. From
this information, it appears that the company is using a predetermined
overhead rate, as a percentage of direct labor costs, of:
a. 80%.
b. 125%.
c. 300%.
d. 240%.

27.
C
Medium

Freeman Company uses a predetermined overhead rate based on direct


labor hours to apply manufacturing overhead to jobs. At the beginning
of the year, the company estimated manufacturing overhead would be
P150,000 and direct labor hours would be 10,000. The actual figures
for the year were P186,000 for manufacturing overhead and 12,000
direct labor hours. The cost records for the year will show:
a. overapplied overhead of P30,000.
b. underapplied overhead of P30,000.
c. underapplied overhead of P6,000.
d. overapplied overhead of P6,000.

28.
B
Medium

Harrell Company uses a predetermined overhead rate based on direct


labor hours to apply manufacturing overhead to jobs. At the beginning
of the year the company estimated its total manufacturing overhead
cost at P400,000 and its direct labor-hours at 100,000 hours. The
actual overhead cost incurred during the year was P350,000 and the
actual direct labor hours incurred on jobs during the year was 90,000
hours. The manufacturing overhead for the year would be:
a. P10,000 underapplied.
b. P10,000 overapplied.
c. P50,000 underapplied.
d. P50,000 overapplied.

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29.
A
Hard

For the current year, Paxman Company incurred P150,000 in actual


manufacturing overhead cost. The Manufacturing Overhead account showed
that overhead was overapplied in the amount of P6,000 for the year. If
the predetermined overhead rate was P8.00 per direct labor hour, how
many hours were worked during the year?
a. 19,500 hours
b. 18,000 hours
c. 18,750 hours
d. 17,750 hours

30.
B
Medium
CPA
adapted

Carlo Company uses a predetermined overhead rate based on direct labor


hours to apply manufacturing overhead to jobs. The company estimated
manufacturing overhead at P255,000 for the year and direct labor-hours
at 100,000 hours. Actual manufacturing overhead costs incurred during
the year totaled P270,000. Actual direct labor hours were 105,000.
What was the overapplied or underapplied overhead for the year?
a. P2,250 overapplied.
b. P2,250 underapplied.
c. P15,000 overapplied.
d. P15,000 underapplied.

31.
D
Medium

Sawyer Manufacturing Company uses a predetermined overhead rate based


on direct labor hours to apply manufacturing overhead to jobs. Last
year, the company worked 57,000 actual direct labor hours and incurred
P345,000 of actual manufacturing overhead cost. The Company had
estimated that it would work 55,000 direct labor hours during the year
and incur P330,000 of manufacturing overhead cost. The company's
manufacturing overhead cost for the year was:
a. overapplied by P15,000.
b. underapplied by P15,000.
c. overapplied by P3,000.
d. underapplied by P3,000.

32.
D
Easy

The Watts Company uses


manufacturing overhead
based on labor cost in
beginning of the year,

predetermined overhead rates to apply


to jobs. The predetermined overhead rate is
Dept. A and on machine hours in Dept. B. At the
the company made the following estimates:
Dept. A Dept. B
Direct labor cost ........
P30,000 P40,000
Manufacturing overhead ...
60,000
50,000
Direct labor hours .......
6,000
8,000
Machine hours ............
2,000
10,000

What predetermined overhead rates would be used in Dept A and Dept B,


respectively?
a. 50% and P8.00
b. 50% and P5.00
c. P15 and 110%
d. 200% and P5.00

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33.
C
Easy

Compton Company uses a predetermined


to production orders on a labor cost
machine hours basis in Department B.
recently completed year, the company
Direct labor cost ........
Factory overhead .........
Direct labor hours .......
Machine hours ............

overhead rate in applying overhead


basis in Department A and on a
At the beginning of the most
made the following estimates:

Dept. A
P56,000
67,200
8,000
4,000

Dept. B
P33,000
45,000
9,000
15,000

What predetermined overhead rate would be used in Department A and


Department B, respectively?
a. 83% and P5
b. 83% and P3
c. 120% and P3
d. 83% and P3
34.
C
Medium

Kelsh Company uses a predetermined overhead rate based on machine


hours to apply manufacturing overhead to jobs. The company has
provided the following estimated costs for next year:
Direct materials ..................
Direct labor ......................
Sales commissions .................
Salary of production supervisor ...
Indirect materials ................
Advertising expense ...............
Rent on factory equipment .........

P10,000
30,000
40,000
20,000
4,000
8,000
10,000

Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours
will be worked during the year. The predetermined overhead rate per
hour will be:
a. P6.80.
b. P6.40.
c. P3.40.
d. P8.20.

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35.
D
Medium

Simplex Company has the following estimated costs for next year:
Direct materials ....................
Direct labor ........................
Sales commissions ...................
Salary of production supervisor .....
Indirect materials ..................
Advertising expense .................
Rent on factory equipment ...........

P15,000
55,000
75,000
35,000
5,000
11,000
16,000

Simplex estimates that 10,000 direct labor and 16,000 machine hours will
be worked during the year. If overhead is applied on the basis of
machine hours, the overhead rate per hour will be:
a. P8.56.
b. P7.63.
c. P6.94.
d. P3.50.
36.
A
Medium

CR Company has the following estimated costs for the next year:
Direct materials .....................
Direct labor .........................
Rent on factory building .............
Sales salaries .......................
Depreciation on factory equipment ....
Indirect labor .......................
Production supervisors salary .......

P 4,000
20,000
15,000
25,000
8,000
10,000
12,000

CR Company estimates that 20,000 labor hours will be worked during the
year. If overhead is applied on the basis of direct labor hours, the
overhead rate per hour will be:
a. P2.25.
b. P3.25.
c. P3.45.
d. P4.70.
37.
D
Medium

Lucy Sportswear manufactures a specialty line of T-shirts. The company


uses a job-order costing system. During March, the following costs
were incurred on Job ICU2: direct materials P13,700 and direct labor
P4,800. In addition, selling and shipping costs of P7,000 were
incurred on the job. Manufacturing overhead was applied a the rate of
P25 per machine-hour and Job ICU2 required 800 machine-hours. If Job
ICU2 consisted of 7,000 shirts, the Cost of Goods Sold per shirt was:
a. P6.50
b. P6.00
c. P5.70
d. P5.50

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38.
B
Hard
CPA
adapted

Lucas Co. has a job order cost system. For the month of April, the
following debits (credits) appeared in the Work in Process account:
April
1
30
30
30
30

Balance .................. P 24,000


Direct materials .........
80,000
Direct labor .............
60,000
Manufacturing overhead ...
54,000
To finished goods ........ (200,000)

Lucas applies overhead at a predetermined rate of 90% of direct labor


cost. Job No. 100, the only job still in process at the end of April,
has been charged with manufacturing overhead of P4,500. The amount of
direct materials charged to Job No. 100 was:
a. P18,000.
b. P8,500.
c. P5,000.
d. P4,500.
39.
C
Hard
CPA
adapted

Worrell Corporation has a job-order cost system. The following debits


(credits) appeared in the Work in Process account for the month of
March:
March
March
March
March
March

1, balance .......................
31, direct materials .............
31, direct labor .................
31, manufacturing overhead applied
31, to finished goods ............

12,000
40,000
30,000
27,000
(100,000)

Worrell applies overhead at a predetermined rate of 90% of direct


labor cost. Job No. 232, the only job still in process at the end of
March, has been charged with manufacturing overhead of P2,250. What
was the amount of direct materials charged to Job No. 232?
a. P2,250
b. P2,500
c. P4,250
d. P9,000

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40.
D
Medium

The Samuelson Company uses a job-order cost system. The following data
were recorded for June:

Job Number
475
476
477
478

June 1
Work in Process
Inventory
P1,000
P 900
P 800
P 600

Added During June


Direct
Direct
Materials
Labor
P
400
P 200
P
600
P 800
P
900
P1,400
P 1,100
P1,900

Overhead is charged to production at 70% of the direct materials cost.


Jobs 475, 477, and 478 have been delivered to the customer.
Samuelsons Work in Process inventory balance on June 30 was:
a. P6,450.
b. P2,860.
c. P2,300.
d. P2,720.
41.
B
Easy

Beaver Company used a predetermined overhead rate last year of P2 per


direct labor hour, based on an estimate of 25,000 direct labor hours
to be worked during the year. Actual costs and activity during the
year were:
Actual manufacturing overhead cost incurred
Actual direct labor hours worked ..........

P47,000
24,000

The under- or overapplied overhead last year was:


a. P1,000 underapplied.
b. P1,000 overapplied.
c. P3,000 overapplied.
d. P2,000 underapplied.
42.
B
Hard

Dowan Company uses a predetermined overhead rate based on direct labor


hours to apply manufacturing overhead to jobs. Last year Dowan Company
incurred P156,600 in actual manufacturing overhead cost. The
Manufacturing Overhead account showed that overhead was underapplied
by P12,600 for the year. If the predetermined overhead rate is P6.00
per direct labor hour, how many hours did the company work during the
year?
a. 26,000 hours
b. 24,000 hours
c. 28,200 hours
d. 25,000 hours

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43.
D
Medium

Paul Company
completed of
direct labor
and activity

used a predetermined overhead rate during the year just


P3.50 per direct labor hour, based on an estimate of 22,000
hours to be worked during the year. Actual overhead cost
during the year were:

Actual manufacturing overhead cost incurred ..


Actual direct labor hours worked .............

P90,000
25,000

The under- or overapplied overhead for the year would be:


a. P13,000 underapplied.
b. P10,500 overapplied.
c. P2,500 overapplied.
d. P2,500 underapplied.
44.
A
Medium

Sweet Company applies overhead to jobs on the basis of 125% of direct


labor cost. If Job 107 shows P10,000 of manufacturing overhead
applied, how much was the direct labor cost on the job?
a. P8,000
b. P12,500
c. P11,250
d. P10,000

45.
C
Medium

Knowlton Company applies overhead to completed jobs on the basis of 70%


of direct labor cost. If Job 501 shows P21,000 of manufacturing overhead
applied, the direct labor cost on the job was:
a. P14,700.
b. P21,000.
c. P30,000.
d. P27,300.

46.
A
Hard

The balance in White Company's Work in Process inventory account was


P15,000 on August 1 and P18,000 on August 31. The company incurred
P30,000 in direct labor cost during August and requisitioned P25,000
in raw materials (all direct material). If the sum of the debits to
the Manufacturing Overhead account total P28,000 for the month, and if
the sum of the credits totaled P30,000, then:
a. Finished Goods was debited for P82,000 during the month.
b. Finished Goods was credited for P83,000 during the month.
c. Manufacturing Overhead was underapplied by P2,000 at the end
of
the month.
d. Finished Goods was debited for P85,000 during the month.

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47.
B
Medium

Under Lamprey Company's job-order costing system, manufacturing


overhead is applied to Work in Process inventory using a predetermined
overhead rate. During January, Lamprey's transactions included the
following:
Direct materials issued to production ....
Indirect materials issued to production ..
Manufacturing overhead cost incurred .....
Manufacturing overhead cost applied ......
Direct labor cost incurred ...............

P 90,000
8,000
125,000
113,000
107,000

Lamprey Company had no beginning or ending inventories. What was the


cost of goods manufactured for January?
a. P302,000
b. P310,000
c. P322,000
d. P330,000
48.
A
Easy

Compute the amount of direct materials used during November if P20,000


in raw materials were purchased during the month and if the
inventories were as follows:
Balance
November 1
Raw materials .... P 4,000
Work in process ..
12,000
Finished goods ...
24,000
a.
b.
c.
d.

49.
C
Hard

Balance
November 30
P 3,000
15,000
27,000

P21,000.
P19,000.
P18,000.
P15,000.

Sharp Company's records show that overhead was overapplied by P10,000


last year. This overapplied overhead was closed out to the Cost of
Goods Sold account at the end of the year. In trying to determine why
overhead was overapplied by such a large amount, the company has
discovered that P6,000 of depreciation on factory equipment was
charged to administrative expense in error. Given the above
information, which of the following statements is true?
a. Manufacturing overhead was actually overapplied by P16,000
for
the year.
b. The company's net income is understated by P6,000 for the
year.
c. Under the circumstances posed above, the error in recording
depreciation would have no effect on net income for the year.
d. The P6,000 in depreciation should have been charged to Work
in
Process rather than to administrative expense.

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Reference: 3-1
Wayne company uses a job costing system and applies overhead to jobs using a
predetermined overhead rate based on direct labor-hours. The company had the
following inventories at the beginning and end of March:
March 1
Direct Materials....... P36,000
Work in Process........ 18,000
Finished Goods......... 54,000

March 31
P30,000
12,000
72,000

The following additional data pertain to operations during March:


Direct materials purchased...
P84,000
Direct labor cost............
P60,000
Direct labor rate............ P7.50 per direct labor-hour
Overhead rate................ P10.00 per direct labor-hour
50.
D
Medium
CPA
adapted
Refer To:
3-1

During March total debits to Work in Process were:


a. P84,000.
b. P220,000.
c. P144,000.
d. P230,000.

51.
D
Medium
CPA
adapted
Refer To:
3-1

The Cost of Goods Manufactured for March was:


a. P212,000.
b. P218,000.
c. P230,000.
d. P236,000.

Reference: 3-2
Hamilton Company uses job-order costing. Manufacturing overhead is applied using a
predetermined rate of 150% of direct labor cost. Any over- or underapplied
manufacturing overhead is closed to the Cost of Goods Sold account at the end of each
month. Additional information is available as follows:

Job 101 was the only job in process at January 31. The job cost sheet for
this job contained the following costs at the beginning of the month:
Direct materials .................. P4,000
Direct labor ...................... P2,000
Applied manufacturing overhead .... P3,000

Jobs 102, 103, and 104 were started during February.


Direct materials requisitions for February totaled P26,000.
Direct labor cost of P20,000 was incurred for February.
Actual manufacturing overhead was P32,000 for February.
The only job still in process at February 28 was Job 104, with costs of
P2,800 for direct materials and P1,800 for direct labor.

52.
A
Medium
CPA
adapted
Refer To:
3-2

The cost of goods manufactured for February was:


a. P77,700.
b. P78,000.
c. P79,700.
d. P85,000.

53.

For the month of February, the manufacturing overhead was:

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D
Medium
CPA
adapted
Refer To:
3-2

a.
b.
c.
d.

P700 overapplied.
P1,000 overapplied.
P2,000 overapplied.
P2,000 underapplied.

Reference: 3-3
Meyers Company had the following inventory balances at the beginning and end of
November:
Raw Materials ......
Finished Goods .....
Work in Process ....

November 1
P17,000
P50,000
P 9,000

November 30
P20,000
P44,000
P11,000

During November, P39,000 in raw materials (all direct materials) were drawn from
inventory and used in production. The company's predetermined overhead rate was P8
per direct labor-hour, and it paid its direct labor workers P10 per hour. A total of
300 hours of direct labor time had been expended on the jobs in the beginning Work in
Process inventory account. The ending Work in Process inventory account contained
P4,700 of direct materials cost. The Company incurred P28,000 of actual manufacturing
overhead cost during the month and applied P26,400 in manufacturing overhead cost.
54.
A
Medium
Refer To:
3-3

The raw materials purchased during November totaled:


a. P42,000.
b. P45,000.
c. P36,000.
d. P39,000.

55.
C
Medium
Refer To:
3-3

The direct materials cost in the November 1 Work in Process inventory


account totaled:
a. P6,600.
b. P6,000.
c. P3,600.
d. P3,000.

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56.
B
Hard
Refer To:
3-3

The actual direct labor hours worked during November totaled:


a. 2,800 hours.
b. 3,300 hours.
c. 3,500 hours.
d. 3,600 hours.

57.
C
Hard
Refer To:
3-3

The amount of direct labor cost in the November 30 Work in Process


inventory was:
a. P2,800.
b. P3,300.
c. P3,500.
d. P6,300.

Reference: 3-4
The following T accounts are for Stanford Company:
Raw Materials
Beg. Bal. 7,000 | 24,000(2)
(1)19,000 |
|
|
|

Cost of Goods Sold


|
|
|
|
|

Sales Salaries Expense


(4) 11,000 |
|
|
|
|
Accounts Payable
| 19,000 (1)
|
5,000 (5)
|
|
|

Beg. Bal.
(2)
(4)
(6)

(2)
(3)
(4)
(5)

Wages & Salaries Payable


|
7,000 Beg. Bal.
| 37,000 (4)
|
|

Work in Process
11,000 |
? (7)
15,000 |
18,000 |
31,000 |
|

Manufacturing Overhead
9,000 |
31,000
(6)
16,000 |
8,000 |
5,000 |
|
Finished Goods
Beg. Bal. 18,000 |
(7) 62,000 |
End. Bal. 15,000 |
|

Accumulated Depreciation
Factory
| 82,000 Beg. Bal.
| 16,000
(3)

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58.
A
Hard
Refer To:
3-4

The indirect labor cost is:


a. P8,000.
b. P15,000.
c. P18,000.
d. P37,000.

59.
D
Hard
Refer To:
3-4

The cost of goods manufactured is:


a. P82,000.
b. P64,000.
c. P71,000.
d. P62,000.

60.
C
Hard
Refer To:
3-4

The cost of goods sold (after adjustment for under- or overapplied


overhead) is:
a. P58,000.
b. P69,000.
c. P72,000.
d. P65,000.

61.
B
Medium
Refer To:
3-4

The manufacturing overhead applied is:


a. P24,000.
b. P31,000.
c. P38,000.
d. P42,000.

62.
B
Hard
Refer To:
3-4

The cost of direct materials used is:


a. P14,000.
b. P15,000.
c. P18,000.
d. P24,000.

63.
A
Hard
Refer To:
3-4

The ending Work in Process account balance would be:


a. P13,000.
b. P75,000.
c. P20,000.
d. P64,000.

Reference: 3-5
Mallet Company has only Job 844 in process on March 1 of the current year. The job has
been charged with P2,000 of direct material cost, P2,500 of direct labor cost, and
P1,750 of manufacturing overhead cost. The company assigns overhead cost to jobs at a
predetermined rate of 70% of direct labor cost. Any under- or overapplied overhead
cost is closed to Cost of Goods Sold at the end of the month.

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64

During March, the following activity and amounts were recorded by the company:
Raw materials (all direct materials):
Purchased during the month .....................
Used in production .............................

P29,500
P30,500

Labor:
Direct labor hours worked during the month .....
Direct labor cost incurred .....................
Indirect labor costs incurred ..................

2,500
P26,500
P5,500

Manufacturing overhead costs incurred (total) ..

P18,500

Inventories:
Raw materials (all direct) March 31 ............
Work in process, March 31 ......................

P7,500
P14,500

Work in process inventory contains P5,500 of direct labor cost.


64.
A
Medium
Refer To:
3-5

The amount of direct materials cost in the March 31 work in process


inventory account was:
a. P5,150.
b. P9,350.
c. P9,000.
d. P3,850.

65.
A
Hard
Refer To:
3-5

The cost of goods manufactured for March was:


a. P67,300
b. P67,250
c. P81,800
d. P75,550

66.
B
Hard
Refer To:
3-5

The entry to dispose of the under- or overapplied overhead cost for the
month would include:
a. a debit of P50 to Cost of Goods Sold.
b. a debit of P50 to Manufacturing Overhead.
c. a debit of P5,500 to Manufacturing Overhead.
d. a credit of P5,500 to Cost of Goods Sold.

67.
D
Hard
Refer To:
3-5

The balance in the March 1 in the Raw Materials inventory was:


a. P10,500.
b. P9,500.
c. P6,500.
d. P8,500.

ManagerialAccounting,9/e

65

Reference: 3-6
The Milo Company's records for May contained the following information:
Actual direct labor-hours .......
9,000 hours
Actual direct labor cost ........ P 47,000
Direct material purchased .......
16,000
Direct material used ............
14,000
Cost of goods sold .............. 100,000
Overapplied overhead ............
5,000
Ending inventories:
Raw materials .................
30,000
Work in process ...............
50,000
Finished goods ................
70,000
The company uses a predetermined overhead rate of P5.00 per direct labor hour to
apply manufacturing overhead to jobs.
68.
C
Medium
Refer To:
3-6

The actual overhead cost incurred during the month was:


a. P50,000.
b. P55,000.
c. P40,000.
d. P45,000.

69.
B
Medium
Refer To:
3-6

The total cost added to Work in Process during May was:


a. P101,000.
b. P106,000.
c. P61,000.
d. P111,000.

Reference: 3-7
The information below has been taken from the cost records of Tercel Company for the
past year:
Raw materials used in production .........................
Total manufacturing costs charged to jobs during
the year (includes raw materials, direct labor, and
manufacturing overhead applied at the rate of 60 per
cent of direct labor cost) .............................
Cost of goods available for sale .........................
Selling and administrative expenses ......................

P326,000

686,000
826,000
25,000

Inventories
Beginning
Ending
Raw Materials ............. P75,000
P 85,000
Work in Process ...........
80,000
30,000
Finished Goods ............
90,000
110,000

ManagerialAccounting,9/e

66

70.
D
Medium
CMA
adapted
Refer To:
3-7

The cost of raw materials purchased during the year amounted to:
a. P411,000.
b. P360,000.
c. P316,000.
d. P336,000.

71.
B
Medium
CMA
adapted
Refer To:
3-7

Direct labor costs charged to production during the year amounted to:
a. P135,000.
b. P225,000.
c. P360,000.
d. P216,000.

72.
C
Medium
CMA
adapted
Refer To:
3-7

The Cost of Goods Manufactured during the year was:


a. P636,000.
b. P766,000.
c. P736,000.
d. P716,000.

73.
B
Medium
CMA
adapted
Refer To:
3-7

The Cost of Goods Sold for the year (before disposition of any
overhead under- or overapplied) was:
a. P736,000.
b. P716,000.
c. P691,000.
d. P801,000.

Reference: 3-8
The following data are for Potras Company:
Finished goods inventory ............
Work in process inventory ...........
Raw materials inventory .............
Purchases of raw materials ..........
Factory depreciation ................
Other factory costs .................
Direct labor ........................
Indirect labor ......................
Selling expense .....................
Over- or underapplied overhead ......

Beginning
P30,000
P20,000
P21,000

Ending
P40,000
P13,000
P26,000
P71,000
P 5,000
P10,000
P27,000
P 6,000
P12,000
-0-

74.
D
Medium
Refer To:
3-8

The cost of raw materials used in production was:


a. P26,000.
b. P71,000.
c. P76,000.
d. P66,000.

75.
C
Medium
Refer To:
3-8

The cost of goods manufactured was:


a. P114,000.
b. P133,000.
c. P121,000.
d. P138,000.

76.

The cost of goods sold was:

ManagerialAccounting,9/e

67

D
Medium
Refer To:
3-8

a.
b.
c.
d.

P131,000.
P91,000.
P81,000.
P111,000.

Reference: 3-9
The Bus Company uses a job-order cost system. The following information was recorded
for September:

Job Number
1
2
3
4

September 1
Inventory
P1,000
1,400
500
750

Added During September


Direct
Direct
Materials
Labor
P 300
P200
250
300
1,500
150
4,000
400

The direct labor wage rate is P10 per hour. Overhead is applied at the rate of P5 per
direct labor-hour. Jobs 1, 2, and 3 have been completed and transferred to finished
goods. Job 2 has been delivered to the customer.
77.
B
Medium
Refer To:
3-9

The ending Work in Process inventory is:


a. P7,575.
b. P5,350.
c. P4,325.
d. P5,150.

78.
C
Medium
Refer To:
3-9

The Cost of Goods Manufactured for September is:


a. P10,750.
b. P11,275.
c. P5,925.
d. P7,625.

79.
A
Medium
Refer To:
3-9

The Cost of Goods Sold for September (before disposition of any underor overapplied overhead) is:
a. P2,100.
b. P5,925.
c. P3,700.
d. P1,950.

ManagerialAccounting,9/e

68

Reference: 3-10
The following journal entries without Peso data were taken from the accounting
records of Case Company. Case company has a job-order costing system and applies
overhead to jobs using a predetermined overhead rate.
1. Work in Process ................ XXX
Manufacturing Overhead ......... XXX
Wages Payable ..............

XXX

2. Salary Expense ................. XXX


Wages Payable ..............

XXX

3. Manufacturing Overhead ......... XXX


Accumulated Depreciation ...

XXX

4. Work in Process ................ XXX


Raw Materials ..............

XXX

5. Work in Process ................ XXX


Manufacturing Overhead .....

XXX

6. Manufacturing Overhead ......... XXX


Raw Materials ..............

XXX

7. Finished Goods ................. XXX


Work in Process ............

XXX

8. Raw Materials .................. XXX


Accounts Payable ...........

XXX

80.
A
Medium
Refer To:
3-10

The entry to record the purchase of raw materials is:


a. 8.
b. 4.
c. 6.
d. 1.

81.
C
Medium
Refer To:
3-10

The entry to transfer the cost of goods manufactured for the period
is:
a. 1.
b. 4.
c. 7.
d. 5.

82.
B
Medium
Refer To:
3-10

The entry to record the application of overhead is:


a. 1.
b. 5.
c. 6.
d. 3.

ManagerialAccounting,9/e

69

83.
B
Medium
Refer To:
3-10

The entry to record depreciation on manufacturing equipment is:


a. 1.
b. 3.
c. 4.
d. 5.

Reference: 3-11
Summit Company has provided the following inventory balances and manufacturing cost
data for the month of January:
Inventories:
January 1
Direct materials ....... P30,000
Work in process ........ P15,000
Finished goods ......... P65,000

January 31
P40,000
P20,000
P50,000

Month of January
Cost of goods manufactured ........
P515,000
Manufacturing overhead applied ....
P150,000
Direct materials used .............
P190,000
Actual manufacturing overhead .....
P144,000
Under Summit's job-order costing system, any over or underapplied overhead is closed
to the Cost of Goods Sold account at the end of the calendar year (i.e., December
31).
84.
D
Medium
CPA
adapted
Refer To:
3-11

What was the total amount of direct material purchases during January?
a. P180,000
b. P190,000
c. P195,000
d. P200,000

85.
C
Medium
CPA
adapted
Refer To:
3-11

How much direct labor cost was incurred during January?


a. P170,000
b. P175,000
c. P180,000
d. P186,000

Reference: 3-12
The Tse Manufacturing Company uses a job-order costing system and applies overhead to
jobs using a predetermined overhead rate. The company closes any balance in the
Manufacturing Overhead account to Cost of Goods Sold. During the year the company's
Finished Goods inventory account was debited for P125,000 and credited for P110,000.
The ending balance in the Finished Goods inventory account was P28,000. At the end of
the year, manufacturing overhead was overapplied by P4,500.
86.
B
Hard
Refer To:
3-12

The balance in the Finished Goods inventory account at the beginning


of the year was:
a. P28,000.
b. P13,000.
c. P17,500.
d. P8,500.

87.
B
Medium

If the estimated manufacturing overhead for the year was P24,000, and
the applied overhead was P26,500, the actual manufacturing overhead
cost for the year was:

ManagerialAccounting,9/e

70

Refer To:
3-12

a.
b.
c.
d.

P19,500.
P22,000.
P28,500.
P31,000.

Essay
88.
Medium

Parker Company uses a job order cost system and applies manufacturing
overhead to jobs using a predetermined overhead rate based on direct
labor-hours. Last year manufacturing overhead and direct labor-hours
were estimated at P50,000 and 20,000 hours, respectively, for the
year. In June, Job #461 was completed. Materials costs on the job
totaled P4,000 and labor costs totaled P1,500 at P5 per hour. At the
end of the year, it was determined that the company worked 24,000
direct labor hours for the year and incurred P54,000 in actual
manufacturing overhead costs.
Required:
a. Job #461 contained 100 units. Determine the unit cost that
would appear on the job cost sheet.
b. Determine the under- or overapplied overhead for the year.
Answer:
a. Direct materials ............
Direct labor ...............
Overhead (300* x P2.50**) ..
Total .....................
Unit cost ..................

P4,000
1,500
750
P6,250
P62.50

* P1,500 P5.00/DLH = 300 DLH


** P50,000 20,000 DLH = P2.50/DLH
b. Actual overhead Cost ........ P54,000
Overhead applied:
24,000 DLH x P2.50 .......
60,000
Overapplied overhead ....... (P 6,000)

ManagerialAccounting,9/e

71

89.
Hard

Gilford, Inc., uses a job order costing system. Costs going through
the company's work in process account during June are given below.
Manufacturing overhead is applied to production using a predetermined
overhead rate based on direct labor cost.
Work in Process
______________________________________________________________________
_____________________________
Balance
-0- | 95,000 Transferred out
Direct materials
20,000 |
Direct labor
30,000 |
Manufacturing Overhead 60,000 |
______________________________________________________________________
______________________________
Balance
15,000 |
Only Job 105 was still in process at the end of the month. This job
had been charged with P3,000 in direct materials cost.
Required:
a. Complete the following job order cost card for Job 105:
Direct materials ..........
Direct labor ..............
Manufacturing overhead ....
Total cost at June 30 ..

P 3,000
_______
_______
_______

b. Determine the total amount of materials cost charged to


jobs during the month.

completed

Answer:
a. Since only Job 105 was in process at the end of the month,
all
of the P15,000 balance in the Work in Process account
must apply
to it.
Total cost in Work in Process (all Job 105) ...
Less materials cost in Job 105 ................
Direct labor and manufacturing overhead cost ..

P15,000
3,000
P12,000

From the Work in Process T-account, it appears that


manufacturing overhead is being applied at 200% of
direct labor cost.
Let X
X + 2.00X
3X
X

=
=
=
=

Direct labor cost


P12,000
P12,000
P 4,000

Thus, direct labor cost in Job 105 is P4,000, and


manufacturing overhead cost is 200% x P4,000 = P8,000.
Therefore,
Direct materials ...........
Direct labor ...............
Manufacturing overhead .....
Total cost at June 30 ...

ManagerialAccounting,9/e

P 3,000
4,000
8,000
P15,000

72

b. Since P20,000 in materials cost was charged to Work in


Process,
and since only P3,000 in materials cost applies to
Job 105, the
difference of P17,000 represents the cost
charged to completed
jobs during the month.
90.
Easy

Stan Wilson, a newly hired worker at Superior Molding, was puzzled by


the job cost sheets attached to the jobs he worked on. He understood
the materials and labor cost entries--these represent the actual costs
of materials he requisitioned for the job and the cost of the labor
hours he recorded for the job. However, he did not understand the
entry for Manufacturing Overhead. This entry was made at the end of
the day by the accountants and he had no idea where this number came
from. He asked the company's controller, Mary Donner, but the only
part of the explanation he understood was that the overhead entries do
not represent actual overhead costs.
Required:
Explain to Stan what the Manufacturing Overhead entries on the job
cost sheet mean.
Answer:
The Manufacturing Overhead entries on the job cost sheet are arrived
at by applying a predetermined overhead rate to the base, which is
most likely direct labor-hours. This number does not represent actual
overhead costs. There are several reasons for this. First, by
definition, it is difficult or impossible to trace overhead costs to
particular jobs. Therefore, actual overhead costs cannot really be
traced to the jobs Stan works on. Even so, an "actual" rate could be
used instead of a predetermined rate for spreading overhead costs
among jobs. However, most companies choose to use a predetermined rate
since actual rates tend to fluctuate and cannot be determined until
the close of the accounting period.

91.
Medium

Bakerston Company is a manufacturing firm that uses job-order costing.


The company's inventory balances were as follows at the beginning and
end of the year:
Beginning
Balance
Raw materials ........ P14,000
Work in process ...... 27,000
Finished goods ....... 62,000

Ending
Balance
P22,000
9,000
77,000

The company applies overhead to jobs using a predetermined overhead


rate based on machine-hours. At the beginning of the year, the company
estimated that it would work 33,000 machine-hours and incur P231,000
in manufacturing overhead cost. The following transactions were
recorded for the year:

Raw materials were purchased, P315,000.


Raw materials were requisitioned for used in production,
P307,000 (P281,000 direct and P26,000 indirect).
The following employee costs were incurred: direct labor,
P377,000; indirect labor, P96,000; and administrative
salaries, P172,000.
Selling costs, P147,000.
Factory utility costs, P10,000.
Depreciation for the year was P127,000 of which P120,000

ManagerialAccounting,9/e

73

is related to factory operations and P7,000 is related to


selling and administrative activities.
Manufacturing overhead was applied to jobs. The actual level
of activity for the year was 34,000 machine-hours.
Sales for the year totaled P1,253,000 .
Required:
a. Prepare a schedule of cost of goods manufactured in good
form.
b. Was the overhead under- or overapplied? By how much?
c. Prepare an income statement for the year in good form.
The company closes any under- or overapplied overhead to
Cost of Goods Sold.
Answer:
a. Schedule of cost of goods manufactured
Estimated total manufacturing overhead(a) P231,000
Estimated total machine-hours (b) .......
33,000
Predetermined overhead rate (a) (b) ...
P7.00
Actual total machine-hours (a) ..........
34,000
Predetermined overhead rate (b) .........
P7.00
Overhead applied (a) X (b) .............. P238,000
Direct materials:
Raw materials inventory, beginning ....P
Add: purchases of raw materials .......
Total raw materials available .........
Deduct: raw materials inventory, ending
Raw materials used in production ......
Less: indirect materials ..............
Direct materials ........................
Direct labor ............................
Manufacturing overhead applied ..........
Total manufacturing costs ...............
Add: Beginning work in process inventory
Deduct: Ending work in process inventory
Cost of goods manufactured ..............P

14,000
315,000
329,000
22,000
307,000
26,000
281,000
377,000
238,000
896,000
27,000
923,000
9,000
914,000

b. Overhead under- or overapplied


Actual manufacturing overhead cost incurred:
Indirect materials ...................P
26,000
Indirect labor .......................
96,000
Factory utilities ....................
10,000
Factory depreciation .................
120,000
Manufacturing overhead cost incurred
252,000
Manufacturing overhead applied .........
238,000
Underapplied overhead ..................P
14,000
c. Income Statement
Beginning finished goods inventory .....P
Cost of goods manufactured .............

ManagerialAccounting,9/e

62,000
914,000

74

Goods available for sale ...............


Ending finished goods inventory ........
Unadjusted cost of goods sold ..........
Add: underapplied overhead .............
Adjusted cost of goods sold ............P
Sales ..................................
Cost of goods sold (adjusted) ..........
Gross margin ...........................
Less selling and administrative expenses:
Administrative salaries ..............P
Selling costs ........................
Depreciation .........................

976,000
77,000
899,000
14,000
913,000
P1,253,000
913,000
340,000
172,000
147,000
7,000
326,000

Net income .............................


92.
Medium

14,000

Allenton Company is a manufacturing firm that uses job-order costing.


At the beginning of the year, the company's inventory balances were as
follows:
Raw materials ........
Work in process ......
Finished goods .......

P 26,000
47,000
133,000

The company applies overhead to jobs using a predetermined overhead


rate based on machine-hours. At the beginning of the year, the company
estimated that it would work 31,000 machine-hours and incur P248,000
in manufacturing overhead cost. The following transactions were
recorded for the year:
a. Raw materials were purchased, P411,000.
b. Raw materials were requisitioned for used in production,
P409,000 (P388,000 direct and P21,000 indirect).
c. The following employee costs were incurred: direct labor,
P145,000; indirect labor, P61,000; and administrative
salaries, P190,000.
d. Selling costs, P148,000.
e. Factory utility costs, P12,000.
f. Depreciation for the year was P121,000 of which P114,000 is
related to factory operations and P7,000 is related to
selling
and administrative activities.

g. Manufacturing overhead was applied to jobs. The actual level


activity for the year was 29,000 machine-hours.
h. The cost of goods manufactured for the year was P783,000.
i. Sales for the year totaled P1,107,000 and the costs on the
cost sheets of the goods that were sold totaled
P768,000.
j. The balance in the Manufacturing Overhead account was closed
out to Cost of Goods Sold.

of
job

Required:
Prepare the appropriate journal entry for each of the items above (a.
through j.). You can assume that all transactions with employees,
customers, and suppliers were conducted in cash.
Answer:
a. Raw Materials Inventory ........
Cash ......................
b.

Work in Process Inventory ......


Manufacturing Overhead .........

ManagerialAccounting,9/e

411,000
411,000
388,000
21,000

75

Raw Materials Inventory ...


c.

d.
e.
f.

g.
h.
i.

j.

409,000

Work in Process Inventory ......


Manufacturing Overhead .........
Administrative Salary Expense ..
Cash ......................

145,000
61,000
190,000

Selling Expenses ...............


Cash ......................

148,000

Manufacturing Overhead .........


Cash ......................

12,000

Manufacturing Overhead .........


Depreciation Expense ...........
Accumulated Depreciation ..

114,000
7,000

Work in Process ................


Manufacturing Overhead ....

232,000

Finished Goods .................


Work in Process ...........

783,000

396,000
148,000
12,000

121,000
232,000
783,000

Cash ........................... 1,107,000


Sales .....................
Cost of Goods Sold .............
768,000
Finished Goods ............
Manufacturing Overhead .........
Cost of Goods Sold ........

ManagerialAccounting,9/e

1,107,000
768,000

24,000
24,000

76

93.
Medium

The Collins Company uses a job-order cost system and applies


manufacturing overhead cost to jobs on the basis of the cost of
materials used in production. At the beginning of the most recent year,
the following estimates were made as a basis for computing the
predetermined overhead rate for the year: manufacturing overhead cost,
P200,000; direct materials cost, P160,000. The following transactions
took place during the year (all purchases and services were acquired on
account):
a. Raw materials purchased, P86,000.
b. Raw materials requisitioned for use in production (all direct
materials), P98,000.
c. Utility costs incurred in the factory, P15,000.
d. Salaries and wages incurred as follows:
Direct labor ......................... P175,000
Indirect labor ....................... P70,000
Selling and administrative salaries .. P125,000
e. Maintenance costs incurred in the factory, P15,000.
f. Advertising costs incurred, P89,000.
g. Depreciation recorded for the year, P80,000 (80% relates to
factory assets and the remainder relates to selling and
administrative assets).
h. Rental cost incurred on buildings, P70,000, (75% of the space
is
occupied by the factory, and 25% is occupied by sales and
administration).
i. Miscellaneous selling and administrative costs incurred,
P11,000.
j. Manufacturing overhead cost was applied to jobs as per
company
policy.
k. Cost of goods manufactured for the year, P500,000.
l. Sales for the year (all on account) totaled P1,000,000. These
goods
cost P600,000 to manufacture.
Required:
Prepare journal entries to record the information above. Key your
entries by the letters a through l.
Answer:
a. Raw Materials ...................
Accounts Payable .............

86,000

b. Work in Process .................


Raw Materials ................

98,000

c. Manufacturing Overhead ..........


Accounts Payable .............

15,000

d. Work in Process .................


Manufacturing Overhead ..........
Salaries Expense ................
Salaries and Wages Payable ...

175,000

ManagerialAccounting,9/e

86,000
98,000
15,000
70,000
125,000
370,000

77

94.
Hard

e. Manufacturing Overhead ..........


Accounts Payable .............

15,000

f. Advertising Expense .............


Accounts Payable .............

89,000

g. Manufacturing Overhead ..........


Depreciation Expense ............
Accumulated Depreciation .....

64,000
16,000

h. Manufacturing Overhead ..........


Rent Expense ....................
Accounts Payable .............

52,500
17,500

i. Miscellaneous Expense ...........


Accounts Payable .............

11,000

j. Work in Process .................


Manufacturing Overhead .......
((P200,000/P160,000) x P98,000))

122,500

k. Finished Goods ..................


Work in Process ..............

500,000

l. Accounts Receivable .............


Sales ........................

1,000,000

Cost of Goods Sold ..............


Finished Goods ...............

600,000

15,000
89,000

80,000

70,000
11,000
122,500

500,000
1,000,000
600,000

Carver Test Systems manufactures automated testing equipment. The


company uses a job-order costing system and applies overhead on the
basis of machine-hours. At the beginning of the year, estimated
manufacturing overhead was P1,960,000 and the estimated machine-hours
was 98,000. Data regarding several jobs at Carver are presented below.
Job Number
XJ-107
ST-211
XD-108
SL-205
RX-115

Beginning
Balance
P118,600
121,450
21,800
34,350
-

Direct
Materials
P 4,000
2,500
86,400
71,800
18,990

Direct
Labor
P 8,400
12,160
36,650
32,175
21,845

Machine
Hours
150
300
3,100
2,700
1,400

By the end of the first month (January), all jobs but RX-115 were
completed, and all completed jobs had been delivered to customers
except for SL-205.

Required:
What was the balance in Finished Goods inventory at the end of
January?
Answer:
The Finished Goods inventory consists only of job SL-205. The balance

ManagerialAccounting,9/e

78

in the account is computed as follows:


Beginning balance, job SL-205 ......... P 34,350
November charges to job SL-205
Direct materials ...................
71,800
Direct labor .......................
32,175
Manufacturing overhead applied* ....
54,000
Ending balance, job SL-205 ............ P192,325
* Predetermined overhead rate = P1,960,000 98,000 MH = P20
per MH
Overhead applied = 2,700 machine-hours X P20 per MH = P54,000
95.
Medium

Dotsero Technology, Inc., has a job-order costing system. The company


uses predetermined overhead rates in applying manufacturing overhead
cost to individual jobs. The predetermined overhead rate in Department A
is based on machine-hours, and the rate in Department B is based on
direct materials cost. At the beginning of the most recent year, the
companys management made the following estimates for the year:

Machine-hours .................
Direct labor-hours ............
Direct materials cost .........
Direct labor cost .............
Manufacturing overhead cost ...

Department
A
B
70,000
19,000
30,000
60,000
P195,000 P282,000
P260,000 P520,000
P420,000 P705,000

Job 243 entered into production an April 1 and was completed on May 12.
The companys cost records show the following information about the job:

Machine-hours .................
Direct labor-hours ............
Direct materials cost .........
Direct labor cost .............

Department
A
B
250
60
70
120
P840
P1,100
P610
P880

At the end of the year, the records of Dotsero showed the following
actual cost and operating data for all jobs worked on during the year:

Machine-hours .................
Direct labor-hours ............
Direct materials cost .........
Manufacturing overhead cost ...

Department
A
B
61,000
20,000
28,000
66,000
P156,000 P284,000
P385,000 P705,000

Required:
a. Compute the predetermined overhead rates for Department A and
Department B.
b. Compute the total overhead cost applied to Job 243.
c. Compute the amount of underapplied or overapplied overhead in

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79

department at the end of the current year.


Answer:
a. Department A predetermined overhead rate:
Estimated overhead cost/Estimated machine-hours
= P420,000/70,000 = P6.00
Department B predetermined overhead rate:
Estimated overhead cost/Estimated direct materials cost
= P705,000/P282,000 = 250% of direct materials cost
b. Overhead applied to Job 243:
Department A:
250 x P6.00 =
Department B: P1,100 x 2.5 =
c.

96.
Medium

P1,500
P2,750
P4,250

Department A
Manufacturing overhead incurred...
P385,000
Manufacturing overhead applied:
61,000 X P6.00 = .............
366,000
P284,000 X 250% = .............
Underapplied (overapplied) overhead P 19,000

Department B
P705,000
710,000
P (5,000)

Scanlon Company has a job-order costing system and applies manufacturing


overhead cost to products on the basis of machine hours. The following
estimates were used in preparing the predetermined overhead rate for the
most recent year:
Machine hours ........................
Manufacturing overhead cost ..........

95,000
P1,710,000

During the most recent year, a severe recession in the companys


industry cause the curtailment of production and a buildup of inventory
in the companys warehouses. The companys cost records revealed the
following actual cost and operating data for the year:
Machine hours ..........................
Manufacturing overhead cost ............

75,000
P1,687,500

Amount of applied overhead in inventories at year-end:


Work in process ...................... P 337,500
Finished goods .......................
253,125
Amount of applied overhead in
cost of goods sold for the year ..
759,375
Required:
a. Compute the companys predetermined overhead rate for the
and the amount of under- or overapplied overhead for the
year.

year

b. Determine the difference between net income for the year if


under- or overapplied overhead is allocated to the
appropriate
accounts rather than closed directly to Cost of
Goods Sold.

the

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Answer:
The companys predetermined overhead rate for the year is:
P1,710,000/95,000 = P18 per machine hour
The amount of under-/overapplied overhead is:
Actual overhead ...............
Applied overhead (P18 X 75,000)
Underapplied overhead .........

P1,687,500
1,350,000
P 337,500

Allocation of underapplied overhead:


Overhead applied in work in process
Overhead applied in finished goods
Overhead applied in cost of goods sold
Total overhead applied

337,500
253,125
759,375
P1,350,000

25.00%
18.75%
56.25%
100.00%

P 84,375
63,281
189,844
P337,500

The entire amount of underapplied overhead P337,500 is added to Cost of


Goods Sold where no allocation occurs. Allocation results in only
P189,844 being added to Cost of Goods Sold. Net income would be higher
under allocation by P337,500 - P189,844 = P147,650.

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97.
Medium

The following cost data relate to the manufacturing activities of the


Kamas Company during the most recent year:
Manufacturing overhead costs incurred during the year:
Property taxes .............
Utilities, factory .........
Indirect labor .............
Depreciation, factory ......
Insurance, factory .........
Total actual costs .........

P 1,600
2,600
5,100
13,000
2,500
P24,800

Other costs incurred during the year:


Purchases of raw materials .
Direct labor cost ..........

P15,000
22,000

Inventories:
Raw materials, beginning ...
Raw materials, ending ......
Work in process, beginning .
Work in process, ending ....

P 5,000
4,400
3,500
4,500

The company uses a predetermined overhead rate to charge overhead cost


to production. The rate for the year just completed was P4.00 per
machine-hour; a total of 6,000 machine-hours were recorded for the year.
Required:
a. Compute the amount of under- or overapplied overhead cost for
year just ended.
b. Prepare a schedule of cost of goods manufactured for the

the
year.

Answer:
a. Actual total manufacturing overhead cost ....... P24,800
Manufacturing overhead applied: 6,000 x P4.00 = 24,000
Underapplied manufacturing overhead ............ P
800

b.

Kamas Company
Schedule of Cost of Goods Manufactured
For the Year Just Ended
Direct materials:
Raw materials, beginning ............... P 5,000
Add purchases of raw materials ......... 15,000
Raw materials available for use ........ 20,000
Deduct raw materials inventory, ending .
4,400

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Raw materials used in production .......


Direct labor ...............................
Manufacturing overhead applied to
work in process ....................
Total manufacturing costs ..................
Add beginning work in process ..............

15,600
22,000

24,000
61,600
3,500
65,100
Deduct ending work in process ..............
4,500
Cost of goods manufactured ................. P60,600

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98.
Hard

Arthur Manufacturing Company produces a single product. The controller


has asked your help in preparing a schedule of cost of goods
manufactured for the month just ended. The following information is
available:
1. Eleven thousand units were sold at P22 per unit.
2. Thirteen thousand units requiring one unit each of raw
were produced.

materials

3. Raw materials inventory at the beginning of the month was


units at P4 each.

1,100

4. During the month, two purchases of raw materials were made:


Purchase #1: 7,000 units at P5 each
Purchase #2: 6,000 units at P5.50 each
5. The company uses the first-in, first-out method of
raw materials inventories.

determining

6. The work in process inventories were:


Beginning of the month:
End of the month:

1,500 units valued at P17,000


1,500 units valued at P19,000

7. Direct labor cost was P110,000.


8. Overhead is applied to production on the basis of 65% of
direct labor cost.
Required:
Prepare a schedule of cost of goods manufactured for the month.

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Answer:
Arthur Manufacturing Company
Schedule of Cost of Goods Manufactured
For the Year Just Ended
Raw materials used:
Beginning raw materials inventory ......
Purchases ..............................
Raw materials available ................
Ending raw materials inventory .........
Raw materials used .....................
Direct labor ...........................
Manufacturing overhead applied
to work in process ................
Total manufacturing costs ..............
Add: Work in process, beginning .......
Deduct: Work in process, ending .......
Cost of goods manufactured .............

4,400
68,000
72,400
6,050
66,350
110,000

71,500
247,850
17,000
264,850
19,000
P245,850

Computations:
Raw materials:
Beginning: 1,100 @ P4 .................
Purchases: 7,000 @ P5 ....... P35,000
6,000 @ P5.50..... 33,000
Ending:
1,100 @ P5.50 ..............
Raw materials used .....................

P 4,400
68,000
(6,050)
P69,350

Units:
1,100 + 7,000 + 6,000 13,000 = 1,100 units in ending inventory.
Factory overhead applied to work in process:
P110,000 x 0.65 = P71,500.

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