UNIVERSITY OF CALOOCAN CITY

COST ACCOUNTING & CONTROL

MIDTERM EXAMINATION

1. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a company’s internal
operations.
c. internal reporting system that provides product costing and other information used by managers in
performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost Accounting
Standards Board pronouncements.

2. Cost accounting standards

a. are legal standards set by the Institute of Management Accountants for use in all manufacturing and
professional businesses.
b. are set by the Cost Accounting Standards Board and are legally binding on all manufacturers, but not
service organizations.
c. do not exist except for those legal pronouncements for companies bidding or pricing cost-related
contracts with the government.
d. are developed by the Cost Accounting Standards Board, issued by the Institute of Management
Accountants, and are legally binding on CMAs.

3. Cost and management accounting

a. require an entirely separate group of accounts than financial accounting uses.

b. focus solely on determining how much it costs to manufacture a product or provide a service.
c. provide product/service cost information as well as information for internal decision making.
d. are required for business recordkeeping as are financial and tax accounting.

4.When graphed, a typical fixed cost appears as:

a. a horizontal line
b. a vertical line
c. a u-shaped line
d. a diagonal line that slopes downward to the right

5. Depreciation expense computed using the straight-line method is an example of a(n):

a. committed fixed cost c. discretionary fixed cost
b. committed variable cost d. discretionary variable cost

6. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the
following relationship was found:

Y = P10,000 + P3x

The P10,000 in the equation is an estimate of:

a. fixed costs per machine hour
b. total fixed costs
c. variable costs per machine hour
d. total variable costs

7. Which of the following methods of cost estimation relies on only two data points?
a. Least-squares regression
b. The high-low method
c. Account analysis
d. Multiple regression

8.Becky Corporation, which uses least-squares method, has derived the following regression equation for
estimates of factory overhead:

Y = 495,000 + 5.65X

Which of the following statements is true if the primary cost driver is labor hours?

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 a. Labor hours is represented by the variable "Y."
b. The company anticipates P495,000 of variable factory overhead.
c. "P5.65" represents the independent variable.
d. “Y” represents the estimated total factory overhead.

9.The term "conversion costs" refers to:

a. the sum of direct labor costs and all factory overhead costs
b. the sum of direct materials costs and direct labor costs
c. manufacturing costs incurred to produce units of output
d. all costs associated with manufacturing other than direct labor and direct materials costs

10.Total goods available for sale less beginning Finished Goods Inventory equals
a. cost of goods manufactured
b. ending Work in Process Inventory
c. total manufacturing costs to account for
d. cost of goods available for sale

11. A journal entry includes a debit to FOH-control and a credit to Raw Material Inventory. The explanation
for this would be that
a. indirect material was placed into production
b. raw material was purchased on account
c. direct material was placed into production
d. direct labor was utilized for production

12. Upon preparation of closing entries for under/over-applied factory overhead, the WIP, FG and COGS
accounts were debited together with a credit to over/under-applied FOH. The explanation for the entry
would be:
a. The actual factory overhead exceeds the applied factory overhead and the difference is considered as a
significant amount.
b. The applied factory overhead exceeds the actual factory overhead and the difference is considered as a
significant amount.
c. The actual factory overhead exceeds the applied factory overhead and the difference is considered as an
insignificant amount.
d. The applied factory overhead exceeds the actual factory overhead and the difference is considered as an
insignificant amount.

13. What is the best cost accumulation procedure to use when many batches, each differing as to product
specification, are produced?
a. Job order costing
b. Process costing
c. Actual costing
d. Standard costing

14. A job cost sheet normal does not include which of the following?
a. Direct materials
b. Direct labor
c. Actual factory overhead
d. Applied factory overhead

15. Traditional overhead allocations result in which of the following situations?

a. Overhead costs are assigned as period costs to manufacturing operations.
b. High-volume products are assigned too much overhead, and low-volume products are assigned too
little overhead.
c. Low-volume products are assigned too much, and high-volume products are assigned too little
overhead.
d. The resulting allocations cannot be used for financial reports.

16.Jackson manufactures products X and Y, applying overhead on the basis of labor hours. X, a low-volume
product, requires a variety of complex manufacturing procedures. Y, on the other hand, is both a high-

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 volume product and relatively simplistic in nature. What would an activity-based costing system likely
disclose about products X and Y as a result of Jackson's current accounting procedures?
X Y
A. Undercosted Undercosted
B. Undercosted Overcosted
C. Overcosted Undercosted
D. Overcosted Overcosted

17. Which of the following describes a part of the step method of allocating service costs?
a. All services between intermediate cost centers are simultaneously allocated to final cost centers
b. It ignores services between intermediate cost centers
c. Linear algebra is required for the allocation
d. Once an allocation is made from one service department, no further allocation is made to this
department

18. Which of the following statements related to production losses is correct?

a. Spoiled goods may be sold at an amount higher than the regular selling price.
b. If spoilage in a job results is due to the exacting specifications of the job, the loss resulting from the
spoiled goods should be shared by all units manufactured during the period.
c. The accounting for spoiled units and defective units is the same.
d. Good units include reworked units.

19. A non-value adding cost is

a. Usually direct to a product cost
b. The same as a discretionary cost
c. Unavoidable
d. Not essential to manufacturing a product

20. A value-added employee in a construction firm would be

a. An accountant
b. A secretary
c. A painter
d. All of the above

21. Which of the following is typically regarded as a cost driver in traditional costing practices?
a. Number of purchase order processed
b. Number of customers served
c. Number of transactions processed
d. Number of direct labor hours worked

22. All of the following phrases are used as alternate terminology for "factory overhead" except:
A. manufacturing expense
B. indirect manufacturing cost
C. factory expense
D. other expense

23.Examples of activities at the batch level of costs include:

A. cutting, painting, and packaging
B. scheduling, setting up, and moving
C. designing, changing, and advertising
D. heating, lighting, and security

24.Scrap includes all of the following except:

A. the trimmings remaining after processing materials
B. defective materials that cannot be used or returned to the vendor
C. partially or fully completed units that are in some way defective
D. broken parts resulting from employee or machine failures

25.When spoilage occurs because of some internal failure, the unrecoverable cost should be charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control

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 D. Applied Factory Overhead

26.When rework occurs because of some action taken by the customer, the cost of the rework should be
charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control
D. Applied Factory Overhead

27. Which one of the following items is not directly reflected in the basic economic order quantity (EOQ)
model?
A. Inventory obsolescence.
B. Interest on invested capital.
C. Public warehouse rental charges.
D. Quantity discounts lost on inventory purchases.

28. The economic order quantity is not affected by the

A. safety stock level
B. cost of purchase-order forms.
C. cost of insuring a unit of inventory for a year.
D. estimate of the annual material consumption.

29. The ordering costs associated with inventory management include

A. Insurance costs, purchasing costs, shipping costs, and obsolescence.
B. Obsolescence, set up costs, quantity discounts lost, and storage costs.
C. Purchasing costs, shipping costs, set-up costs, and quantity discounts lost.
D. Quantity discounts lost, storage costs, handling costs, and interest on capital invested.

30. The carrying costs pertaining to inventory include

A. Insurance costs, incoming freight costs and setup costs.
B. Insurance costs, incoming freight costs and storage costs.
C. Setup costs and opportunity cost of capital invested in inventory.
D. Storage costs and opportunity cost of capital invested in inventory.

I. PROBLEMS:

31. Howard, Inc., uses the high-low method to analyze cost behavior. The company observed that at 20,000
machine hours of activity, total maintenance costs averaged P10.50 per hour. When activity jumped to
24,000 machine hours, which was still within the relevant range, the average cost per machine hour
totaled P9.75. On the basis of this information, the company's fixed maintenance costs were:
a. P24,000
b. P90,000
c. P210,00
d. P234,000

32. McGee Company manufactures chairs and provides the following information in relation to its operations
for the year 2020:
Cost of goods sold P 690,000
Total goods available for sale 720,000
Total work placed in process 650,000
Work in process, beginning 60,000
Prime costs 350,000
Conversion costs 450,000

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 How much is the company’s total manufacturing cost for the year 2020?
a. P710,000
b. P800,000
c. P590,000
d. P780,000

33. Morris Company manufactures chairs and provides the following information in relation to its operations
for the year 2020:
Cost of goods sold P 690,000
Total goods available for sale 720,000
Total work placed in process 650,000
Work in process, beginning 60,000
Prime costs 350,000
Conversion costs 450,000

What is the change in FG inventory assuming an ending WIP balance of P20,000?

a. P60,000 decrease
b. P60,000 increase
c. P20,000 increase
d. P20,000 decrease

34. Murray Co. uses a job order costing system. During April 2020, the following costs appeared in the Work
in Process Inventory account:
Beginning balance P 40,000
Direct material used 90,000
Direct labor incurred 150,000
Applied overhead 120,000
Cost of goods manufactured 330,000

Murray Co. applies overhead on the basis of direct labor cost. There was only one job left in WIP
Inventory at the end of April which contained P24,000 of factory overhead. What amount of direct
material was included in this job?
a. P4,400
b. P16,000
c. P6,920
d. P8,000

35. Jokic Co. applies overhead to jobs at the rate of 80% of direct labor cost. Direct materials of P15,000 and
direct labor of P25,000 were incurred on Job No. 911 during October 2020. At September 30, the balance
of Job No. 911 was P12,000. The September 30 balance of this Job is (assuming the job is still incomplete
as of this date:
a. P83,250
b. P59,250
c. P72,000
d. P48,000

36. At the end of the last fiscal year, Harden Company had the following account balances:
Under-applied overhead P 1,000
Cost of Goods Sold 880,000
Work in Process Inventory 50,000
Finished Goods Inventory 70,000

If the most common treatment of assigning over-applied overhead was used, the final/adjusted balance of
Cost of Goods Sold would have been:
a. P880,000
b. P879,000
c. P881,000
d. P880,880

37. At the end of the last fiscal year, Harden Company had the following account balances:
Over-applied overhead P 100,000
Cost of Goods Sold 700,000

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 Work in Process Inventory 200,000
Finished Goods Inventory 100,000
Raw Materials Inventory 50,000

Assuming the over-applied factory overhead was considered significant, the final/adjusted balance of FG
inventory would have been:
a. P100,000
b. P90,000
c. P110,000
d. P90,476.19

38. Cadott Manufacturing produces three products. Production and cost information show the following:
Model X Model Y Model Z
Units produced 1,000 3,000 6,000
Direct labor hours 2,000 1,000 2,000
Number of inspections 20 30 50

Inspection costs totaled P50,000. Using direct labor hours as the allocation base, inspection costs
allocated to each unit of Model X would be
a. P5.00 c. P20.00
b. P10.00 d. P15.00

39. Genco manufactures two versions of a product. Production and cost information show the following:
Model A Model B
Units produced 100 200
Material moves 10 40
DL hours per unit 1 3

Material handling costs total P100,000. DL hours are used to allocate overhead costs. The material
handling costs allocated to each unit of Model A would be:
a. P143 c. P333
b. P200 d. Some other amount

40. Waupaca Company produces three products with the following production and cost data:
Model A Model B Model C
Units produced 2,000 6,000 12,000
DL hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5

Overhead costs include setups P45,000; shipping costs P70,000; and engineering costs P90,000. What
would be the per unit overhead cost for Model B if ABC were used?
a. P11.00 b. P33.00 c. P61.50 d. P22.00

41. Sammy Company produces two products in a single factory. The following production and cost
information has been determined:
Model F1 Model G4
Production 10,000 2,000
Material moves (total) 100 40
Product tests (total) 250 125
DL hours per unit 1 5

The controller has determined that total overhead is expected to be P480,000. P140,000 of which relates
to material moves, P150,000 relates to testing and the remainder is related to labor time. Under ABC,
what would be the overhead cost per unit be for Model F1?
a. P40.00 b. P29.50 c. P24.00 d. P12.00

42. Materials of Oliver Company are sent through two production departments: Fabricating and Finishing.
Overhead is applied to products in the Fabricating Department based on 150% of direct labor cost and
P18 per machine hour in Finishing. The following information is available about Job No. 04-500:
Fabricating Finishing

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 Direct materials P 1,590 P 580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
FOH applied 429 ?

The total cost of Job No. 04-500 is

a. P2,647 b. P3,005 c. P3,093 d. P3,203

43. A company manufactures pipes and uses a job order costing system. During July 2020, the following jobs
were started (no other jobs were in process) and the following costs were incurred:
Job 1 Job 2 Job 3
Materials P 10,000 P 20,000 P 15,000
Direct labor 5,000 4,000 2,500

In addition, estimated overhead of P300,000 and direct labor costs of P150,000 were estimated to be
incurred during the year. Actual overhead of P24,000 was incurred in July; overhead is applied on the
basis of direct labor costs. Only Job 1 and 3 are completed during the month.

The total factory cost for the month amounts to

a. P79,500 c. P56,500
b. P80,500 d. Answer not given

44. Some units of output failed to pass final inspection at the end of the manufacturing process. The
production and inspection supervisors determined that the incremental revenue from reworking the units
exceeded the cost of rework. The rework of the defective units was authorized and the following costs
were incurred in reworking the units:

Materials requisitioned from stores:

Direct materials P 5,000
Miscellaneous supplies 300
Direct labor 14,000

The manufacturing overhead budget includes an allowance for rework. The predetermined manufacturing
overhead rate is 150% of direct labor cost. The account(s) to be charged and the appropriate charges for
the rework cost would be:
a. WIP inventory for P19,000.
b. WIP for P5,000 and FOH-control for P35,300.
c. FOH-control for P19,300.
d. FOH-control for P40,300.

45. R Corp.'s order quantity for Material T is 5,000 lbs. If the company maintains a safety stock of T at 500
lbs., and its order point is 1,500 lbs., what is the normal lead time assuming daily usage is 50 lbs.?
A. 10 days B. 20 days C. 30 days D. 100 days

46. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average inventory (taking
into account the safety stock) is 8,000 pounds. What is the economic order quantity?
A. 6,000 lbs. B. 10,000 lbs. C. 16,000 lbs. D. 21,000 lbs.

47. One of the products that Nature Way Health Products sells is a magnetic back support. The ordering cost
related to this product is P12.50 per order. The cost of carrying one item of inventory for one year is
P16.00. The business sells 40,000 of this type of product evenly throughout the year. How much is the
total ordering costs per year and the total carrying costs per year at the economic order quantity?
A. B. C. D.
Ordering costs P1,562.50 P1,562.50 P2,000.00 P4,000.00
Carrying costs P1,562.50 P2,560.00 P2,000.00 P4,000.00

48. Penguin Company manufactures winter jackets. Setup costs are P2.00. Penguin manufactures 4,000
jackets evenly throughout the year. Using the economic order quantity approach, the optimal production
run would be 200 when the cost of carrying one jacket in inventory for one year is:
A. P0.05 B. P0.10 C. P0.20 D. P0.40

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49. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year. If
ordering costs are P200 and carrying costs are P0.50 per unit per year, what is the estimated total annual
usage?
A. 2,400 units B. 6,000 units C. 7,200 units D. 28,800 units

50.Oldman Company's Job 5681 for the manufacture of 2,200 coats was completed during August at the unit
costs presented below. Due to the customer’s intervention in the production process, 200 coats were
found to be spoiled during final inspection that were sold to a jobber for P6,000.
Direct materials................................................................................................... P20
Direct labor.......................................................................................................... 18
Factory overhead................................................................................................. 18
................................................................................................................... P56

What would be the unit cost of good coats produced on Job 5861?
A. P58.60 B. P56.00 C. P53.27 D. P50.91