CHAPTER 3 COSTS CONCEPTS and CLASSIFICATION [Problem 1] 1.

Direct labor Variable factory overhead Fixed factory overhead Unit conversion cost 2. Direct materials Direct labor Unit prime cost Unit prime cost Variable factory overhead Unit variable cost

P10 15 6 P31 P32 10 P42 P42 15 P57

3.

4.

Total production cost (12,000 units x P63) P756,000 P 68,000 90,000 40,000 28,000 20,000 15,000 190,000 22,000 P473,000

[Problem 2] 1. Indirect materials and factory supplies Supervising salaries Repairs and maintenance Heat, light and power Overtime premium plant worker Fringe benefits for plant worker Depreciation plant Insurance plant Actual factory overhead 2. 3.

Applied factory overhead (71,000DLH x P7.50) = P532,500 Actual factory overhead Less: Applied factory overhead Overapplied factory overhead Factory overhead shown on the statement of cost of goods manufactured P473,000 532,000 P( 59,500) P473,000

4..

[Problem 3] 1. Unit cost =

= P4.35

P750,000 + P800,000 + P80,000 + P110,000 400,000 units

2. 3.

Cost of goods sold = 360,000 units x P4.35 = P1,566,000 Inventory Aug. 31 = 40,000 units x P4.35 = P174,000

[Problem 4] Department A P 800,000 600,000 20,000 P 1,420,000 Department B P 1,200,000 660,000 60,000 P 1,920,000

1. Direct materials Direct labor Factory supplies Direct variable costs 2. Controllable direct fixed costs: Supervising salaries Uncontrollable direct fixed 3. costs: Depreciation of machinery and equipment 4. Controllable direct fixed costs Uncontrollable direct fixed costs Total direct fixed costs 5. Direct variable costs Direct fixed costs Total direct costs 6. Allocated costs from corporate Headquarter Allocated repairs and maintenance (P250,000 x 120 / 400) Allocated factory rent - building (P200,000 x 20%) Allocated plant executives salaries (P380,000 x 40%) Total indirect costs 7. Allocated costs from corporate headquarter Allocated factory rent - building Allocated plant executives salaries Depreciation for machinery and equipment Total unavoidable costs

48,000

72,000

P P

140,000 48,000 140,000 188,000 1,420,000 188,000 1,608,000

P P

220,000 72,000 220,000 292,000 1,920,000 292,000 2,212,000

P P P

P P P

130,000 75,000 40,000 152,000

190,000 175,000 160,000 228,000

397,000

753,000

130,000 40,000 152,000 140,000 462,000

190,000 160,000 228,000 220,000 798,000

Supporting computations: Department B Allocated repairs & maintenance (P250,000 x 280 / 400) Allocated factory rent building (P200,000 x 80%) Allocated plant executives salaries (P380,000 x 60%)

P 175,000 160,000 228,000

[Problem 5] 1. Chemicals (P2,000 100 lbs.) Direct labor (P200 100 lbs) Electricity and water (P100 100 lbs) Supervisors salaries (P500 100 lbs) Unit variable costs 2. Depreciation expense Other factory costs Total fixed costs
300 tons Variable costs (No. of tons x 100 x P28) Fixed costs Total costs Unit costs [(Total cost / No. of tons)/100 lbs] P 840,000 P 320,000 P 1,160,000 P

P20 / lb. 2 1 5 P28 / lb. P120,000 per month 200,000 P320,000 per month
400 tons 1,120,000 P 320,000 1,440,000 P 500 tons 1,400,000 320,000 1,720,000

3.

4.
P 38.67 / lb P 36 / lb P 34.40 / lb

[Problem 6]
Cost Item a b c d e f g h I Direct (D) or Indirect(I) D I I D I I I D I Variable (V) or Fixed (F) V F F V F V F F F

[Problem 7]

Cost Item a b c d e f g h I j k l m n

Direct (D) or Indirect(I) D D D D I D D D D D D D I I

Variable (V) or Fixed (F) V V F F F V F F F V F F F F

[Problem 8] 1a. VC Ratio

= = =

(P26,400,000 P20,000,000) (P44,000,000 P28,000 000) P6,400,000 P16,000,000 40%

2. 2002 2003 Total costs and expenses P 20,000,000 P 26,400,000 Variable costs (40% x sales) (11,200,000) (17,600,000) Fixed costs P 8,800,000 P 8,800,000 P8,800,000 BEP (pesos) = = P14,666,667 60% Contribution margin (P50 million x 60%) Less: Fixed costs and expenses Operating income P30,000,000 8,800,000 P21,200,000

3. 4.

[Problem 9] a. Cost Item 1. 2. 3. 4. 5. 6. 7. 8.

Graph 6 11 1 4 5 10 3 7

9. 4.

9 Understanding the behavior of costs would guide managers on how to deal and control costs in relation to volume of production. This could greatly help in planning and controlling activities resulting to better business results.