Professional Documents
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Bockflush Cosfing SYsfem and
Activity- Bosed Cosfin g
t. lnlroduclion
tt. Deiinition
Bocktlushcostingorbockflushingisoshort-cutopproochtooccountingforlheflowof
goods moved
monufocturing operotions. lt oetqys recording iournol entires until the
through the Produclion Process.
1055
I OJ6
Chabter 20
u
Activily - Based Coslln g
l. .lnlroduclion
Activity-bosed cosiing (ABC) hos been populorized becouse of the ropid increose in lhe
outomolion of monufocluring process, which hos led to o significont increose in the
incunence of indirect cosls ond o consequent need for more occurote cost ollocolion.
Under lhe octivity-bosed cosiing, os the nome implies, costs ore qccumuloted by octivily
rolher lhon by deportment or funclion for purposes of producl cosling.
Definilion
ABC Costing is one meons of refining o cost system lo ovoid whot hqs been colled
peonvl'buller cosfing. lnoccurolely overoging or spreoding costs like pdonul-buller
over producls lhot vse differenl amounls of resources resulls in o producf-cosf;cross-
subsidizotion.
1. ldentifies the cousol relofionship between the incurrence of cosl ond ocrivilies
2. Delermines lhe underlying driver of the octivities
3. Estoblished cost pools reloled to individuol drivers
4. Develops costing rotes
5. Applies cosi to product on rhe bosis of resources consumed (drivers)
ln lhis costlng syslem, cosf drivers ore identified ond used qs o bosis ior cost. ollocoiion.
Cosf drivers ore the foctors thot will contribute lo increosing or decredsing cosis, ln
oddition, under the oclivity-bosed costing opprooch. lhose qclivilies lhot do nol qdd
volue lo the product ore reduced to tne extent possible.
Bockllush Cosling:
.-.1.
f.fi:ijr,Eii;,P365,000
a.
c. P367.000
":'11..:Si$rl'368,600
".'i.f
'r' "
d. 365,400
.. 11:,.i,;, - (Adopted)
:- "" "'.
Z; lTl$t EUlocon Monufocturing Compony produces only for customer order ond
. 'fri{$ wbrk is shipped within thirty-six hours of the receipt of on order. Bulocon
,' . u$.orbw ond in process {RlP) inventory occount ond expenses oll conversion
' Cd$ls'tb the cost of goods sold occount. Work is shipped immediolely upon
.cc{'npletion, so there is no finished goods occount. At the end of eoch monlh,
infdniW'rs counted, its conversion cost component is estimoted, ond lhe RIP
acbodnt bolonce is odjusted occodingly. Row moteriolcost is bockflushed from
RIP to Cost of Goods Sold. The following informotion is for the month of Moy:
,-:i t+rr.r,,;.
j{. r:
',ti;l}'"
I 058 Chapter 20
3. using the some informotion in No. 2, compute the omouni of cost of Goods
Sold ofter oll tronsoctions ond odjustments were mode:
o. P246,WO c. P247,@O
b. 246,2@ d. 245,000
{Adopfed)
4. Chongi Ong, generol monoger of Cosio Corporotion's Midwest Division,
hos provided the following informotion fortronsoctions thot occurred during
Morch. This division uses o JIT costing syslem.
o. P2,100,000 c. P 950,000
b. 2,5s0,000 d. 3.100,000
(Adopted)
o. P8,500,000 c. P10,600,000
b. 9,050,000 d. 9,6s0,000
{Adopted)
o. P1,300,000 c. P1,600,000
b. 1,495,000 d. 1,195,000
(AdoPted)
o. P1,304,000 c. P1,600,000
b. 1,495,000 d. 1.195,000
{Adopted)
12- using the some informorion in No. r l, whol wos the
overoppried or
underopplied conversion costs for the month?
Dhect moteriols
P2A
Conversion costs
44
P64
Backflush Costing System and Activi$t-Based Co:sting I 061
Assume thot the firm hod no inventory on August L The following events
took ploce in August:
14. Using lhe some informotion in No. 13, determine the August 3l (ending
bolonce) of Finished goods occount:
o. P -0- c. ?12,962
b. 12,850 d. 12,800
{Adopted)
'15. A slreomlined occouniing system:
16. Ongchon Metol Fobricotors hos o diverse producl line ond o complex cost
strulture, with some jobs requiring much lobor ond little mochine use ond
othen requiring the opposite mix. Becouse no single bose foro predetermined
overheod rote will provide Ongchon Meiol monogement with relioble product
cost informotion, overheod is clossified inlo two cost pools ond two
predetermined overheod roies ore used. For 2001, it is estimoted thot totol
overheod costs will consist of P200,000 of overheod reloted to the usoge of
direci lobor hours ond'P300,000 of overheod reloted to mochine usoge.
Tolol mochine usoge is expected to be 4,0@ hours for the yeor, ond totol
direct lobor hours ore expected to be 16,000.
Job 345 required P2,000 of direct moteriol,30 hours of lobor ot Pi0 per
hour, ond l0 hours of mochine time.
Determine the duol predetermined overheod rotes:
o. P2,300.00 c. P3,425.00
b. 3.162.s0 d. s,800.00
(Adopted)
18. Kote Mochine Tool lncorporoted produces o voried product line without
the use of direct lobor. An extensive setup procedure'is required. B;;;r;
no single bose for o predetermined overheod role will provide Kote with
relioble product cost informotion, overheod is clossified into iwo cost pools
ond two predetermined overheod rotes ore used. For 201 l, it is estimoteJ
lhot totol overheod costs will consist of P525,000 of overheoO refoteJ Jo
setups ond P900,000 of overheod reloied to mochine usoge. Totol muchine
usoge is expected to be 3,600 hours for the yeor, snd th6 totor numoeiot
setups is expected to be 300.
Job 403 requir:ed ports ond moteriols costing ps6,0oo, z0 hours of mochine
time, ond four setups
19. Using the some informotion in No. lg, compute lhe cost of Job 403
cr. P78,208 c. P 83,038
b. 8o,5oo d. 179.500
(Adopted)
20. Teta Compony is preporing its onnuol profit pldn. As port of its onolysis of
ihe profitobility of individuol products, the controller esiimotes the omount
of overheod thot should be ollocoted to the individuol product lines from
the informotion given os follows:
Woll Speciolty
Mirrors Windows
Unitsproduced ........... 25 25
Moteriol moves per product line ................... 5 l5
Direct lobor hours per unit 200 M
Budgeted moteriols hondling costs .........-----. P50,000
Under o costing system thot ollocotes ovetheod on the bosis of direct lobor
hours {troditionol), the moteriols hondling ccsts ollocqted to one unit of
woll mirrors would be
o. P1,000 c- P2,000
b. 500 d. 5,000
(cMA)
21. ollocoted
Using the some informotion in No. 20, the moteriols hondling costs
to ohe unit of woll mirrors under Activity-Bosed Costlng would be:
o. P1,000 c. P 1,500
b. 500 d. 2,500
tcMA)
22. A compony hos idenlified the following overheod costs ond cost drivers
for the coming yeor:
Budgeted
Overheod Cost Budgeted Activity
Item Driver Cost Level
Mochine Number of setups P 20,000 200
setup
lnspeclion Number of Pr30,000 6,500
inspections
Moteriol ' Number of P 80,000 8,m0
hondling moteriol moves
Enginering Engineering hours F'50,000 r.000
P280,000
The following informotion wos collected on ihree jobs thotwere completed
during ihe yeor:
Number of n l0 30
lnspections
Number of moteriol 30 l0 50
moves
Engineering hours t0 50 t0
Budgeled direcl lobor cost wos P100,000 ond budgeted direci moteriol
cost wos P280,000.
o. PI,3OO c. PS,OOO
b. 2,000 d. 5,600
(clA)
Using the some informotion in No. 22, compute the cost of eoch unit of
Job 102 using Aclivity-Bosed Costing:
. o. P340 c. P44O
b. 392 d. 520
(crA)
Backflush Costin7 System and Activity-Based Costing t06s
24. Using the some informotion in No. 23, ossuming the cornpony prices its
products ot 140% of cosl ond lhe compony uses Activity-Bosed Costing,
ine price of eoch unii of Job 103 would be:
o. P98 c. Pl 16
b. r00 d. 140
(clA)
25. Believing thot its troditionol cost system moy be providing misleoding
informofion, on orgonizotion is considering on oclivity-bosed cosling (ABC)
opprooch. lt now-employs o full-cost system ond hss been opplyingits
monufocturing overheod on the bosis of mochine hours.
The orgonizotion plons on using direct lobor hours qnd 30,000 mqchine
5O,OOO
hours in the coming yeor. The following doto show the monufocturing
overheod ihot is budgeted'
Budgefed Budgeted
Activity . Cost Driver Activi,N cosf
Moteriols hondling No. of ports hondled 6,000,000 P720,@O
Setup cosls No. of seiups 7fi 31 5.000
Mochining cosls Mochine hours 30,000 540,000
Quolity control No. of botches 500 225,000
Cost, soles, ond production doto for one of the orgonizotion's products
for the coming yeor ore os follows:
Prime costs:
Direci moteriol cost per unit............. ..r;.".....'...... P4.40
Direct lobor cost Per unit
.05 DLH @ P1 5.00/D1H ...............
Totol prime cost............
o. P5.39 c. P6.l I
b. 5.44 d. 6.95
Using the some informotion in No.25, ond ossuming thot the orgonizotion
employs on Aciivity-Bosed costing system, the cosl per unit of lhL product
deseribed for the coming yeorwould be:
o. P6.00 c. P6.21
b. 6.08 d. 6.30
(crA)
27. Kotherine lnc. of Cebu Ltd. hqs decided lo instilute o piiot octiviiy-bosed
cosiing project in its five-person purchosing deportment. Annuoldeportmentol
costs ore P473,500. Becouse finding the best supplier tokes the mojority of
effort in the deportment, most of the costs ore ollocoted to this oreo.
Numberof Totol
Activily Allocotion Meosure Peop/e Cost
Find best suppliers Number of telephone colls 3 p30o,0oo
lssue purchose orders Number of purchose orders I lo0,ooo
Review receiving reports Number of receiving reports I 23,500
During lhe yeor, the purchosing deportment mode l5o,@o lelephone colls,
issued 10,000 purchose orders, ond reviewed 7,000 receiving reports. Mony
purchose orders ore received in o single shipment.
o. P1,00/.50 c. P921.48
b. 4,500.00 d. 327.55
(Adopted)
Backflush Costing System and Activity-Based Costing I 067
28. Using the some informotion in No.27, whot is ihe purchosing deportment cost
per unit would be if 200 units of the product ore monufoctured during the yeor?
o. P2.0O c. P10.00
b. 5.04 d. 10.50
(Adopted)
29. UST Community Hospitol hos found itself under increosing pressure to be
occountbble for lhe chorges it ossesses its potienls. lts cunent pricing system
.is od hoc, bosed on pricing norms for the geogrophicol oreo, ond it only
explicitly considers direct costs for surgery, medicotion, ond other treotments.
UST1 s controller hos suggested thot the hospitol try to improve its pricing policies
The hospilol provides service in three brood cotegories. The services ore
listed below with their volume meosures for the octivity centers.
Outpotient
Surgery Housrng Core
o. P759,2O0 ?2,634,@0 P528,800
b. 162,8@ 7ts,000 134,2@
c. 2,828,400 3,983,500 987,6W
d. 280,000 1,120.000 270,W
(Adopted)
3l. Product 53 uses 2oo hours of direct lobor ond hos 2,000 mochine steps. Kote
Ong, the cost occountont, hos been considering using eilher direct loboi
hours or mochine steps os the cost driver. The rotio of overheod cost to
direct lobor hours is P60. The ossignmeht of overheod cost to producl 53
using direct lobor hours would result in o higher chorge by p4,000 thon if
mochine steps were used os the cost driver.
o. P6 c. P60
b.2 d.4
{Adopted}
32. Cebu Enterprises is o Philippine exporter of sduvenir items monufoctured
in the copitol cily of Jerusolem. The following overheod cosi doto hove
been occumuloled:
Amovntl
Cenfer Cost Driver of Center Cosfs
...
Moteriols Hondling Groms hondled lo0,oo0 groms p so,oo0
Poiniing .. Unihpointed 50,@0 units 2oo,ooo
Assembly... Lobor hours 4,000 hours l20,OO0
Job 1234 conloins 3,000 units. tt weighs l0,oo0 groms ond uses 300 hours of
lobor.
compute the totol overheod cosls thot should be ossigned to Job 1234.
o. P31,955 c. P26,000
b. 27,750 d. 32,000
(Adopted)
Backflush Costing System and Activity-Based Costing I 069
Activity
Center
Low-Unit' Med-Unit Cosfs
Receiving orders 100 r50 P 7,500
Mochine hours.......... 12,000 13,000 125,000
Setups n 9,750
Shipping orders m 400 30,0@
Assume the lotol costs of oll octivity centers ore ollocqted on the bosis of
mochine hours. Colculote the overollrote ond ollocote overheod costs to
lhe two products using thot rote.
Model X Model Y
produced
, Unils 100. m
Moteriolmoves l0 n
Direct lobor hours per unit I 2
36. Ambrose Compony uses three products wilh ihe following production.ond
cost informotion:
o. P10,25 c. P41.00
b. 37.00 d. 20.50
(,Adopted)
38. Using the some informotion in No. 3d, whot would be the per unit overheod
cost for Model M, if ABC costing were used?
o. .Pl 1.00 c.
b. ' 33.00
P61.50
d. 41.00
{Adopted}
1071
39. Using the some informotion in No. 36, whot would be the per unit overheod
cost for Model L, if ABC were used?
o. P 5.42 c. P122.64
b. 16.25 d. 4r.00
(AdoPted)
40. Sony Ericsson hos two mojor components with the following informoiion:
lndoor Outdoor
Furniture, Fumitvre Totol
Annuglrevenue P300,000 P600,000i P900,000
Moteriolcosts................... P 40,000 P 60;000 Pr00.000
Lobor costs .......... P 50,000 P 75,000 P125,000
Moteriqlshours................. 80,000 20,000
Number of bcitches ........ 100 100
Determine the income {loss) of eoch segn'tent if the overheod costs will be
ollocoted to segment bosed on lobor costs (troditionol):
41. Using lhe sorne infonirotion in No. 40, determine the income (loss) of eoch
segment if the overheod cpsts will be ollocoted to segment under ABC costing:
ABg AB
o. Wo M" 4V" c. lMo W" 6V"
b. M" w" wo d. 5% 2U" 73%
{Adopted}
43. Using the some informotion in No. 40, compute the consumption rotios
bosed on units produced would be:
ABC A
o. 4V" M" 4Vo c. lV" -LC
fi%o 6Vo
b. M" Wo \Mo d. 5% 227" 73%
{Adopted)
44. New-Roge cosmetics hos used o iroditionol cost occounting system to
opply quolity Control costs uniformly to oll products ot o rote of l4.S% ot
direct loborcost. Monthly direct loborcosi forSqlin Sheen mokeup is p22,500.
ln on ottempt to distribute quolity conlrol costs more equitobly, New-Roge
is considering octivity-bosed costing. The monthly doio shown in the chort
below hove been gothered forSotin Sheen mokeup.
Quontityfor
Activity Cosf Driver Cost Rofes Sotin Sheen
lncome
moteriol
inspeclion Type of moteriol Pl l.50pertype l2types
ln-process
lnspeclion Number of units P0.14 perunit I 7,500 units
Product
Ceirtificotion Per order P77 per order 25 orders
B ackflush Cmting fys tem atd Activ ity-B as ed Co st ing I 073
The monthly quolity conlrol cost ossigned to Solin Sheen mokeu,p lrsing
octivity-bosed costing is
45. Cost ollocotion is lhe process of ossigning indirect costs to o cost object.
The indirect costs ore grouped in cost pools ond then ollocoted by o common
ollocotion bose lo the cost object. The bose thot is employed to ollocote
o homopeneous cosl pool should
47. An occounting system thot collects finonciol ond operoting doto on the
bosis of the underlying nolure ond exlent of the cost drivers is
o. Activity-bosedcosling.
b. Torget cosfing.
c. Cycle-time costing.
d. voriobte costing.
(cMA)
I 074 Chapter.20
49. Which of the following stotements obout octivity-bosed costing is not true?
o. Activity-bosed cosling is useful for ollocoting morketing ond
distribution costs.
b. Activity-bosed costing is more likely to result in mojor differences
from trodifionol cosling systems if the firm msnufoctures only one
produci rother thon multiple products
c. ln octivity-bosed costing, cost drivers ore whot couse costs to be
incurred.
d. Activity-bosed costing differs from troditionol cosling systems in
thot products ore not cross-subsidized.
(clA)
50. Becouse of chonges thot ore occuning in the bosic operotions of morry firms, oll
of the following represent trends in lhe woy indirect costs ore ollocoted except.
51. Whot is the normoleffeci on the numbers of cost pools ond ollocotion boses
when on octivity-bosed cost (ABC) system reploces o troditionolcostsystem?
Nonvolue-Adding
AII Cost Drivers Activities
o. No No
b. Yes Yes
c. No Yes
d. Y": ' No
(AlcPA)
53. Chong Co.'s cost ollocotion ond product c'osting procedures follow
octivi[r-gqsed costing principles. Activities hove been identified ond
clossified os being'either volue-odding:or nonVolue-Cdding os to eoch
product. Which o-f the following octivifies, used in Chong's production
process, is nonvolue-odding?
54. Which of the following would be o reosonoble bosis for ollocoting the
moteriols hondling costs to the units produced in on octivity-bosdd costing
system?
l. (d)
Beginning bolonce of RIP occount (P31,000- p1,400) P 29,6@
Add: Row moteriols received on credit 367,000
Toto1.......... p396,600
Less: Ending bolonce of RIP inventory perphvsicolcount
(P33,000- Pl,B00) 31.200
Amount to be bockftushed from Rtp to Finlshed goods ........ p36q,4gq (d)
2. (c)
Beginning bolonce of RIP occount (p12,3ffi- p1,300) P I r,000
Add: Row moteriols received on credit 246,W
Totol .......... p2S7,W
Less: Ending bolonce of RIP inventory per physicolcount
(P12,100*P2,100) IO,0OO
Amount to be bockflushed from Rlp to cost of goods sold . p247,w (cl
(b)
Cost of goods so|d........... p247,W
Less: Adjustment.in Conversion Cost (p2,100 - pl,30O) ........... .
g0O
P3A6,2ao (bl
BacUlush Costins System and Activity-Based Costins I 077
4. (o)
Acluol Foctory Overheod .................... P225,WO
Direct Lobor Costs lncurred .............:................... 77,ON
Totoloctuol conversion costs i............. P302,000
Less: Applied Conversion Costs to production ............. 300,000
Morch 3l Conversion Cost bolonce-debii / underopplied... P 2.000 (o)
5. (b)
Amouni to be bockflushed from RIP to Finished Goods........ P 97,000*
Applied conversion costs to production 300,000
Morch 3l finished goods bolonce, debit................................... P392,000 (b)
*Note: There's no RIP beg. ond ending bolonces.
6. (c)
Rdw moteriols purchosed were requisitioned for production . P25Q,0QC (c)
*Note: There's no RIP beg. ond ending bolonces.
7. (b)
Amount lo be bockflushed from RIP to Finished Goods........ P 950,000
Applied conversion costs to production .r-.......j!r. 8,r00,000
P9,0s0,000 (b)
8. (c)
Row mqteriols requislioned for production / omount to be
bockflushed from RIP & CGS ....... P 300,000
Applied conversion costs to production 1,300,000
October 3l Cost of goods sold bolonce, debit .. Pr,600,000 (c)
Refer lo No.5
9. (c)
Actuolfoctory overheod P 995,000
Direct lobor costs incurred 200,000
The Actuol Conversion Costs ......... Pr,195,000
Less: Applied Conversion Costs to production ............. r,300,000
Overopplied converstion costs P105,000 (c)
Refer to No. 4
r0. (b)
. Cost of Goods Sold bolonce (refer to No. B) ......-....... Pr,600,000
Less: Overopplied conversion costs (refer to No.9) ................ 105,000
P r,495,000 (b)
I 078 Chapter 20
ll. (o)
Row moteriols requisitioned for production/ omount to be
fockflushed from RIP lo CGS ....... P 45,000
Applied conversion cost to production .................... 22l,OO0
' bolonce, debit
September 30 bolonce in the Cost of Goods Sold
.......... P 266,000 (o)
t2. (c)
[ctuot'foctory Overheod :
lndirec.t1obor.......... ........................ P 120,000
Utilities costs ......... 15,000
Others ...... 85,000
Direct lobor costs incurred P 220,@0
I1,000
TotolAcluolconversion costs P 235,000
Less:AppliedConyersionCoststoproduction......'......
Underopplied Conversion Costs .............:.........................:......... l___19499 (c)
13. (c)
Beginning bolonce of' RIP occount.. t
Add:Row moteriols purchosed ........::::::::::::::::.:::::::.::.:.:::::.::::::. .ro,oo3
Applied Conversion Costs* 704,000
Totol .......... .i..r.........i!!..r ........ Pl ,024,@0
Less: Ending bolonce of RIP occount 0
Amount lo be bockflush from RIP to Finished of goods ........ BI_,024,0QQ (c)
* lt should be nofed thot the Applied Conversion costs tronsoction wos
entered into the RIP occounf os sfofed in the problem, unlike Nos. l-12.
Normolly, opplied conversion costs goes directly fo CGS occounf fin some
coses, finished goods occount).
14. (d)
Amount bockflush from RIP {No. l3) ............... .....,.PI ,024,W
Divided by: Units completed 16,@
Unit Cost... ........ P 64
Multiplied by: Finished goods ending inventory
(r 6,000 - 1s,800)
P r 2,800 {d)
rs. (d)
Backflush Costing System and Activity-Based Costing I 079
r6. (d)
Per Direct Lobor Hour: P200,000 / 16,000 DL hours l]2.5o (d)
I
:P3,425 (c)
lB. (o)
Per Mochine Hour: P900,000/3.600 mochine hours !-2!9 (o)
Per Setup: P525,000/300 setups l-llso (g)
re. (b)
Job # 103:
Ports ond Moteriols P56,000
Applied Overheod [(70 x P250) + (4 x P1,750)] ................. 24,ffi
(b)
I8ofp
20. (o)
ini: pSO,OAO of cosls is ollocoled over t0"000 hours [(25 x 200 hrs.] + (25 x 200 hrs./J. Ihus, fhe
overheod cosf per hour is P5 (P50,000 + 10,000 hn.), ond lhe per unit overheod cosl of
woll minors is P1,000 (P5 x 200 direct lobor hours).
Answer /b) is incorAcf becouse P500 is the ottocotian bosed on number ot moteriol
rnoves. Answer (c) is inconect becouse P2,0Q0 ossurnes thot oll fhe overheod is ollocofed
lo fhe wall minors Answer (d) is inconecf becouse P5,000 ossumes overheod of P250,000.
21. (b)
ABC ollocofes overheod cosfs on the bosis of some cousol relotionship befween fhe
incurrence of cosf ond activities. Becouse lhe moves for woll mrTron consfitute 25% (5
+ 20) of tgtol moves. the minors should obsorb 25% of the totol moteriols hondling costs,
or P12,500 (25% x P50,000). The remoining P37,500 is o/locofed to specialty windows. Ihe
cosf per unit of woll minors is P500 (P12,500 +25).
Answer (oJ is inconecl becouse PI,OOO uses direct loboros lhe ollocofion bosrb. Answer
(c) is incorrecf becouse P4,500'rs fhe olloboilon per unil of speciolly windows. Answer
fdJ is inconect becouse P2,500 is nof bosed on fhe number of moteriol rnoves..
22. (o)
ABC oltocotes overheod cosfs more precisely thon trodilionol mefhods. lt identifies
fhe octivities ossociofed with the incvrrence of cosfs, determines fhe cosf driver for
eoch octivity, ond ollocotes cosf occordingly. Thus the cosl per sefup is Pl00 (P20,000
+2A!. per inspection P20 (Pt30,000 +6,500), per moteriol move Pt1 (P80,000 +8,N0), ond
per engineering hour P50 (P50,000 + 1,00A). The averheod ollocated to Job l0l is
thereforePl,300 I(1 setvp x Pl00J + p0 inspections x P20) + (30 moterio, rnoves x Pl?) + (10
enginering houn x P50JJ.
Answers (b) is incorecf becouse P2,000 equols the overheod ollocqtion for Job 103.
Answer ic) is inconecf becouse P',OOA equals the ollocation of overheod using direct
- rnoferiols cost os o bose. Answer (d) is incorrect becouse P5,600 equols 2% {,,OOO DL
cost + P100,000 budgeted annuol DL cosf/ of budgefed overhead.
23. (o)
The overheod cosfs for the oclivifies ore pl00 per selup, p20 per inspecfion, pl}"per
materiol move, ond P50 per engineering hour. Thus, overheod oltocoted to Job 102 is
P3,000 [(2 setups x Pl00) + {t0 inspections x p20) + (10 moteriot moves x pto) + (so
engineering hours x P50)1. The production cosl of Job t02 is plT,ooo (pl2,ooo DM + p2,ooo
DL + rc,0A0 OH), ond lhe cosf per unit is p340 (pt7,000 + 50).
Answer (b) is incorrecl becouse P392 ossumes overheod is oltocoled bosed on direct
lobor cost. Answer (c) is incorrecf becouse P440 assumes on oyerheod oltocotion of
P8,000. Answer (d) is incorrect becouse P520 ossumes overheod is ollocoted boied on
direct mqleriols cosl.
24. (o)
rhe cosfs per job for the octivities are plo| per sefup, p2a per inspecfion, pto per
mqteriol move, and P50 per engineering hour. Overieod ollocoled to Job t03 is p2,000
[(4 setups x Pl00) + {30 inspecfions x P20) + (50 materiol rnoyes x PtO'l + (10 engineering
hours x P50)1. Hence. the production cosf ot Job.t03 is pt4,000 (?B,OOO DM + p4,OOO DL+
P2,000 oHJ, the cosf per'unit is P70(Pt4,000 +200), ond the price is p9B (t40% x p70).
Answer (b) is incorreci becouse Pl00 is the unit cosf rf oyerheod js ol/ocofed bosed on
direct moteriols cosf. Answer (c) is incorrecf becouse Pll6 is the unit cost if overheod
is'ollocoted bosed on direct tobor cosf. Answer {d/ is inconecf becouse pl40 ossumes
cosf is Pi00.
25. (c)
Given thot monufocturing overheod is opplied on ihe bosis of mochine hours, fhe
overheod lofe 1s P60 pey hour (Pt,800,000 , 30,000) or p.96 per unit tf60 x 80 mochine
hours per bolchl +5,00a unifs perbofchJ. Accordingty, the unit full-cosf is p6. ll (p5. 15
unit prime cosf + P.96J.
Answer (a) is incorrecl becouse P5.39 ossurnes thof 80 mochine hours ore required for
the totol prodvction ot 20,000 unifs. Answer (b) is incorreci becouse p5.44 is bosed on
lhe rnachining overheod rote [Pl9). Answer (d) is incorrecf becouse p6.9S is bosed on
lhe diect lobor hour monufocturing overhead rote.
26. (d)
ttlqle_rigl2 hondling cost.per port is p.t2 (p72o,ooo + 6,000,000), cosi per setup is p420
(P315,000 +750), machining cosf per hour is pt8 (p540,000 +3o,boq, oid quolity cov plr
boich is P450 (P225,000 +-500). Hence, totol monufocturing overheod opptiea'is p22,92a
'+
[(5 ports per unit x 20,000 unifs x p. 12) + (4 bofches x 2 ietups per odtLn x p42o) (4
bolches x 80 mochine hours,per botch x Pl8) + 14 bofches x idsdl. The totol unil cosi is
P6.296 [P5.15 prime cosl + (P22,920 +20.000 unifsJ overheodJ.
Answer (A) is incorrecl becouse p6.oo ossurnes one selup per botch and g0 Iotol
rnochine hours. Answer (bJ is incorrect becouse P6.0B ossurnbs thot onty aO iotiiie
hours were used. Answer (c) is incorrecl becouse p6.21 ossumes one setup per botch.
Backflush Costing System and Activity-Based Costing I08l
27. (o)
Colls: P300,000 + 150,000 colls ........... P 2 percqll
Purchose Orders: P 100,000 + 10,000 purchose orders ..,... P l0 per p.o.
Reports: P73,500 + 7,000 receiving reports P10.50 per R.R.
Cost Assignment:
125 colls x P2 per coll ............. P 250.00
60 purchose orders x P10 per p.o. ................:............r........ 600.00
l5 receiving report x P10.50'per R.R. .......... 157,50
Totol costs
,
28. (b)
Amounl of purchosing deportment costs.......... P t,007.50
Divided by: No. of unils 200
ll9i&!il F)
2e. (c)
Professionol Solories: P900,000 + 30,000 P 30 per hour
Building Costs: P450,000 + 15,000 ......j...r....!.. P 3O per sq. ft.
Risk Monogement: P320,000 + 1,000 .................... P320 perpolient (c)
so. td)
surgery: (6,000 x P30) + (1,200 x P3o) + (200 x P32o) P 28O,OO0
Housing: (20,000xP30) + (12,000xP30) + (500xP320) PI,120,000
Outpotient Cose: (4,000x P30) + (1,800x P30) + (300x P320) . P 270,000 {d)
3r. (d)
Overheod chorge using lobor hours: P60 x 200 Pr2,000
Overheod chorge using mochine hours: P12,000 - P4,000 .... P 8,000
Rotio of overheod costs to mochine steps
P8,000 + 2,000 P4lslep (d)
32. (c)
Cost Assignment:
Moteriols Hondling: (P50,000 + 100,000) x 10,000 P 5,000
Pointing: (P200,000 + 50,000) x 3,000 12,000
Assembly: (P120,000 + 4,000) x 300 9,000
_Pzt,oq (c)
t 082 Chapter 20
33. (b)
Allocotion of Costs using on overoll rote:
Totol Activity Center Costs {P7,500 + P125,000 + ?9,750
+ p30,000) .............;......
Divided by: No. of Mochine hours (12,000 + 13,000) ...... 25,o00
Overollrote P6.89
34. (b)
Using moteriol moves under ABC cosling:
l
3s. (c)
Using direct lob6r hours under troditionol costing:
x r nr.lunitj +1200;iT; x 3 hrs./unit}]
Pl oo,0oo + [{l 00 units
P 100.000 +.700 hours = P I 43 per DL hour
ModelX: Pl43 pei Ot hr. x I hr. per unit = 143 (c)
ModelY: Pl43 per DL hr. x 3 hrs. per unit =P429 lcl
36. (d)
Troditionol Costing (DL hours):
. = P20.5
(P45,000 + FZb,OOO + P'O,0OO) + (4,000 hrs. + 2O00 hr. + 4,000 hr.)
per DL hr.
=
ModelS: P20.5 per DL hr. x 4,000 hrs. = P82,000 + 2,000 units
P4l (d)
Model M: P20.5 per DL hr. x 2,000 hr. = P41,000 + 6,000 units
P6.8s (d)
37. (b)
ABC Costing - ModelS:
Setups: P45,000+ (100 + 150 + 25) = p96x 100 = P 9,000
Shipping: P70,000 + (200 + 225 + 275) = Pl00 x 200 = ...... 20,000
Eng'g.: P90,000 + (15 + l0 + 5) = P3,000 x l5 = ................. 45,000
38. (o)
ABC Costing - ModelM: (refer to No.37)
Setups: P90 x 150 ............,.. P13,500
Shipping: P1'00 x 225 .......... 22,5W
Eng'.: P300 x 10............ 30,000
-Lr--Ll- (o)
3e. (o)
ABC Costing - Model L: (refer to No.37)
Setups: P90 x 250 P22,ffi
Shipping: Pl00 x 275 ............. 27,ffi
Eng'.: P3,000 x 5.....:........ r5,000
lndoor Outdoor
P300,000 P600.000
P 40,000 P 60,000
50,000 75,000
200,000
300,000
P290,000 P435,000
Setups:
lndoor: P175,000 I 20Ox 100....... 87,5000
Outdoor: ..... Pl 75,000 / 2@ x 100 87,500
Administrotive:
lndoor: P125,000/ p125,000
x P50,000... s0,000
Outdoor: ...... Pt 25,000 / pI 25,000
x P75,000 75.000
Totol Costs ....... p3gZ,SOO P337,500
lncome (Loss) P262,s00 (b)
42. (b)
Rolios bosed on set-up:
ModelA: 100 + (lOO + ISO + 250) M"
ModelB: 150 + {100 + lS0 + 2S0) W"
Modet C: 250 + (t00 + 150 + 250) w"(bl
43. (c)
Rotios bosed on units produced:
ModelA: 2,000 + (2,000 + 6,000 + 12,000) lwo
Model B: 6,000 + (2,000 + 6,000 + 12,000)
Model C: 12,000 + (2,000 + 6,000 + 12,000) M" Gl
Backflush Costing System and Activity-Based Costing I 08s
44. (d)
ABC identifies lhe cousol retotionship befween the incurrence of cosf old activities,
determines the drivers of the activities, esloblishes cosi pools relofed lo fhe drivers
and activities. ond ossigns costs fo ultimote cost objects on ihe bosis of lhe demonds
(resources or drivers consurnedJ ploced on fhe ocfivities by fhoge cosl objecls. Hence,
ABC ossigns overhead cosls bosed on multipl€ ollocotion boses or cost drivers. Under
the traditional, single-bose sysfem, the omount ollocofed is P3,987.50 (P27,500 x 14.5%).
Under ABC, lhe omounl ollocoted is P4.513 [(Pl L50 x 12) + (P.14 x 17,500) + (P77 x25]l' or
P525.50 more thon under the troditionol sysfem.
Answer (A) is inconect becouse fhe ABC ossignmenf of P4,513 is of o role of Pl8O.52 for
eoch of the 25 orders. Answer IBJ is inconecl becouse ABC yields o higher oll?cotion.
Answer (C) is incorrecf becouse the totol is P4,513 on lhe ABC bosis.
45. (o)
A cosi ollocation bose is lhe common denominolor for syslemoficolly correloting indirect
cosls ond o cosf object. Ihe cosl driver of the indirect cosls is ordinorily the ollocolion
bose. ln o homogeneous cosl pool, oll cosfs should hove fhe sorne or o sirni,or couse-
ond-effect relofionship with the cosl o,locofion bose.
46. (b)
Muttiple roles ore appropriate when o process differs subsfontiolly omong deporfmenfs
or when producls do not go through oll departments or all processes. The trend,n cosf
occounfing is foword ocfivify-bosed cosfing, which divides produclion into numerous
oclivities ond identifies lhe cosf driver(s) mosf relevonf lo eoch. Ihe resulf is o rnore
occurote ossignmenf of cosfs.
Answer (o) is incorrecf becouse one rote may be cosl beneficiol when o srng/e prodvct
proceeds through homogeneous pr.ocesses. Answer (cl is incorrect becouse individuol
cosl dnvers for oll relationships musl be known to use multiple opplicotion roles. Answer
(d) is incorrecf becouse, if one rote is reloled fo severol cost drivers, it con be used os
o sunogole for multiPle rotes.
47. {o)
An activity-bosed costing (ABC,| system identifies lhe cousol relolionship between lhe
incurrence of cosls ond octivilies, deternines the cost driver for eoch octivily, ond
opp,ies cosfs lo producfs on the boiis of resources (drivers) consumed.
Answer (bl is incorrect becouse forgef cosling determines lhe moximum ollowable
cosf of o product before the product is designed or produced; il deducts on acceptoble
profit morgin from o forecosled selling pn'ce. Answer (c) is inconecf becouse cycle time
is lhe period from'i[e time o cusfomerp,oces an order to the lirne that product is
delivered. Answer (ci[ is incorrecl becouse vorioble cosiing expenses fixed foctory
overheod os incured.
48. (o)
A cosl driver is "o meosure of octivily, such os direct lobor hours, mochine houn, beds
occvpied, computer lime used, flight hours, miles driven, or confrocfs, fhot is o couso/
foctor in the incurrence of cost to on entity." lt is o bosis used lo ossign costs fo cosi
obiects.
Answer (b) is incorrecf becouse cosl drivers ore not controls. Answer (c) is incorrect
becouse cosl drivers ore rneosures of ocfivtlies lhof couse cosfs. Answer (d) is incorrect
becouse, o/fhough cosf drivers moy be used fo ossign cosfs, they ore nol necessori/y
mechonical. For exomple, o cosf driver for pension benefits is employee solories.
4e. (b)
ABC determines fhe oclivilies dssociofed with the incurrence of cosfs ond fhen
occumvlotes o cosf pool for eoch octivity using the oppropriole octivity O"g t.osi
driver). However, given one product, oll
' porliculor methOd used fo ollocofe fhe cosls ore ossigned fo the one produci; the
cosls does nol matter.
Answer {aJ is incorrecl becouse marketing ond distribution cosls should be ailocoted
fo specific producfs. Answer (cl is inconecf becouse, by definition, o cosf driver js o
foctor thot offects (drivesl the incurrence of a cosf. Answer (d) is incorrecl becouse
producf-cosf-cross-subsidization occurs when products ore miscosfed. Ihe more
occurate cosf ol/ocoilon provided by ABC minimizes fhe subsidy received by
undercosfed producfs df fhe expense of overcosted producfs.
so. (c)
Given fhe automotion of focfories ond the conesponding emphosis on ABC, plant-
wide opplicotion rofes ore being used less offen becouse bett:er informolion con be
provided of reosonob/e cosf. ABC resulfs in o more occurote oppticolion of indiect
cosls becguse il provides more refined dofo. lnsfeod of o single cosf pool for o process,
o deportment, or an entire plont, on indirect cosl pool is estiblisned for eoch ibentffiea
activity. The reloted cost driver, the foctor thof chonges fhe cosf of the octivity, is otso
' idenlified.
Answer (o) is inconecl becouse one effecf of outomation is o decreose in direct labor
usoge. Ihus, sorne cornponies no longer trock direct lobor cosfs c/osety. They treot
direct lobor os o foctory overhead cosf. Answer (b) is incarrecf becouse throughout is
the'rate of production over o sfofed trrne. lt cteorty drives (influences/ cosfs. aniwer (dl
is incoftect becouse multiple cost pools permit o beffer oilocotion of indirect cosfs fo
cosl oblecfs.
sr. (d)
ln an ABC sysfem, cosf ollocolion is more precise than in traditionol sysfems becouse
oclivifes rother than f unctions or deporfmenfs ore defined os cosf oO;ecfs. fnrs
slrucfure permits ollocotion to more cosf pools ond the identificotion of o cost driver
specificolly relofed fo eoch. A cosl driver is a foctor fhof couses o chonge in lhe cost
pool for o particulor octivity. Ihus, on ABC systern uses rnore cosl poo/s and
oilocotion
boses lhon o troditionol sysfem.
Answer (a), (b), ond (c) are inconectbecouse lhe nurnbers of cosl pools ond ollocotion
boses increose.
Backfluth Costing $rystem and Activity'Based Costing 1087
s2. (c)
An ABC systern determines octivifies ossocioted with tne incunence of cosls ond fhen
occumuloles o cosf pool for each octivity. lt'then identifies the cosl driver for eoch
activily. A cosl dnver is o foctor thot couses o chonge in lhe cosl pool for a porticular
cost Objecf. Activilies thot do nof odd cusfomer volue ore identified ond eliminoted
fo lhe exfent possible. A cteor undersfondin g of whol couses o cosf (the cost driver)
hblps eliminofe lhe nonvotue-odding octivities. However, oll cosf drivers connof be
eliminoted.
Answer (o) , (b), ond (dl ore incorrecl becouse nonvalue'-odding octivities ore
uq1ne.grory ond therefore ore eiimincrted, but not oll cost drivers ore eliminoled.
s3. (d)
edc oilocotes costs more precisely lhan troditionol systems. becouse cost pools ore
occumuloted for qctivities rother thon funcfions or deparlmenfs. Ihis slrucfure permits
ottocotion lo more cost pools ond fhe identificolion of o cosf driver specificolly reloted
lo eoch. Anolysis by octivity olso provides for better cost confrol becouse of
id€ntificotion of nonuolue-odding ocfivifies. For exomple, row materiols sloroge moy
be greotty reduced oi eliminoted in o JtT system without offecting cuslomer vo/ue.
Answers (o), (bl, ond (c) ore incorrecf becouse design engineering octivity, heot
treotmenit ocfivrty, ond dritt press oclivily odd volue fo products in lhe production
process.
54. (b)
ABC idenlifies lhe cousol relofionship befween cosls ond ocfivifies, defermines.fhe
drivers of the ocfivifies, esfoblishes cosf pools reloled to individuol drivers, develops
cosling rofes, ond opplies cosf fo producfs on the bosis of resources consumed (dr!vepl..
The r6bilonship between fhe number of componenfs in o finished product ond
moterials hondling cosfs is direct ond cousol.
Answer (oJ is incorrecf becouse lhe nurnber of production runs per yeor does nof
provide individuol unil cosfs. Answer {c}\ rs inconecl becouse the fime to produce one
unit is lroditionolly vsed to ollocote overheod fo unils produced in o ,obor-infensive
process. Answer {dJ is inconecf becouse overhead opptied to eoch'cornplefed unif is
fhe resulf of, not o bosr's for, ollocofion.