ACTIVITY BASED COSTING AND JUST IN TIME SAMPLE QUESTIONS (ADAPTED)

MODCOS1 1st Term AY 2018-2019

Problem 1
Chan Fabricators has a diverse product line and a complex cost structure, with some jobs
requiring much labor and little machine use and others that require opposite mix. Because no
single base for a predetermined overhead rate, this will provide Chan management with a reliable
product cost information, overhead is classified into two cost pools and two predetermined
overhead rates are used. For 2016, it is estimated that total overhead costs will consist of
P200,000 of overhead related to machine to the usage of direct labor hours and P300,000 of
overhead related to machine usage. Total machine usage is expected to be 4,000 hours for the
year, and total direct labor hours are expected to be 16,000.

Job 345 required P2,000 of direct material, 30 hours of labor at P10 per hour, and 10 hours of
machine time.

Required:
1. Determine the POHR per DL hour.
2. Determine the POHR per Machine hour.
3. Using numbers 2 and 3, calculate the cost of Job 345.

Problem 2
Beta Company is preparing its annual profit plan. As part of its analysis of the profitability of
individual products, the controller estimates the amount of overhead that should be allocated to
the individual product lines from the information given as follows with a total budgeted materials
handling costs of P50,000:

Wall Specialty
Mirrors Windows
Unit produced 25 25
Material moves per product line 5 15
Direct labor hours per unit 200 200

Required:
1. Under a costing system that allocates overhead on the basis of direct labor hours (traditional),
the materials handling costs allocated to one unit of wall mirrors would be?
2. The materials handling costs allocated to one unit of wall mirrors under ABC would be?

Problem 3
A company has identified the following overhead costs and cost drivers for the coming year.

Budgeted Budgeted
Activity Cost Driver
Cost Activity
Machine setup Number of setups P20,000 200
Inspection Number of inspection P130,000 6,500
Material handling Number of material moves P80,000 8,000
Engineering Engineering hours P50,000 1,000
ACTIVITY BASED COSTING AND JUST IN TIME SAMPLE QUESTIONS (ADAPTED)
MODCOS1 1st Term AY 2018-2019

The following information was collected on three jobs that were completed during the year:

Job 1 Job 2 Job 3

Direct materials P5,000 P12,000 P8,000
Direct labor P2,000 P2,000 P4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10

Budgeted direct labor cost was P100,000 and budgeted direct material cost was P280,000.

Required:
1. If the company uses ABC, how much overhead cost should be allocated to Job 1?
2. Compute the cost of each unit of Job 2 using ABC?
3. Assuming the company prices its products at 140% of cost and the company uses ABC, the
price of each unit of Job 3 would be?

Problem 4
Believing that its traditional cost system may be providing misleading information, an
organization is considering an ABC approach. It now employs a full-cost system and has been
applying its manufacturing overhead on the basis of machine hours.

The organization plans on using 50,000 DL hours and 30,000 machine hours in the coming year.
The following data show the manufacturing overhead that is budgeted.

Budgeted Budgeted
Activity Cost Driver
Cost Activity
Materials handling Number of parts handled P720,000 6,000,000
Setup costs Number of setups 315,000 750
Machining costs Machine hours 540,000 30,000
Quality control Number of batches 225,000 500

Cost, sales, and production data for one of the organization’s products for the coming year are
as follows:

Prime costs:
Direct material cost per unit P4.40
Direct labor cost per unit (.05 DLH @ P15.00/DLH) P.75

Sales and production data:

Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch

Required:
1. If the organization uses the traditional full-cost system, the cost per unit for this product
for the coming year would be?
2. Assuming that the organization employs ABC system, the cost per unit of the product for
the coming year would be?

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ACTIVITY BASED COSTING AND JUST IN TIME SAMPLE QUESTIONS (ADAPTED)
MODCOS1 1st Term AY 2018-2019

Problem 5
Sony has two major components with the following information:

Front Door Back Door

Furniture Furniture
Annual revenue P300,000 P600,000
Material costs P40,000 P60,000
Labor costs P50,000 P75,000
Material hours 80,000 20,000
Number of batches 100 100

The business also has overhead costs as follows:

Activity Cost in Pool Activity Driver

Maintenance P200,000 Machine hours
Setups P175,000 Number of batches
Administrative P125,000 Labor costs

Required:
1. Determine the income (loss) of each segment if the overhead costs will be allocated to
segment based on labor costs (Traditional).
2. Determine the income (loss) of each segment if the overhead costs will be allocated to
segment under ABC.

Problem6
Green Company uses a backflush costing system with three trigger points:
• Purchase of direct materials
• Completion of good finished units of product
• Sale of finished goods

There are no beginning inventories. Information for May 2015 is as follows:

Direct material purchased P680,000

Direct material used 650,000
Conversion cost incurred 222,000
Conversion cost allocated 300,000
Costs transferred to finished goods 950,000
Cost of goods sold 900,000

Required:
1. Compute the balance of Materials and In-Process Inventory Control end.
2. Computer the balance of Finished Goods Control end.

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ACTIVITY BASED COSTING AND JUST IN TIME SAMPLE QUESTIONS (ADAPTED)
MODCOS1 1st Term AY 2018-2019

Problem7
GOOFY Company uses a backflush costing system with three trigger points: (1)Purchase of
direct materials; (2) Completion of finished goods; and (3) Sale of finished goods. There are no
beginning inventories and the company sold 75,000 units out of 80,000 units produced.
Information for June 2016 is as follows:

Direct material purchased P680,000

Direct material used 650,000
Conversion cost incurred 222,000
Conversion cost allocated 300,000
Cost of goods sold 890,625

Any underallocated or overallocated conversion costs are written off to cost of goods sold at the
end of June. The company sell their products at 120% above cost.

Required:
1. Calculate the standard manufacturing cost per unit of a product.
2. How much is the company’s gross profit?
3. Compute the balance of Finished Goods Control end.

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