21.

Those cost referred to as “controllable costs” are

a. costs which management decides to incur in the current period to enable the
company to achieve objectives other than the filling of orders placed by
customers.
b. costs which are likely to respond to the amount of attention devoted to them
by a specified manager.
c. costs which fluctuate in total in response to small changes in the rate of
utilizations of capacity.
d. costs which will be unaffected by current managerial decisions.
(CMA, adapted)

22. In the preparation of the schedule of Cost of Goods Manufactured, the

accountant incorrectly included as part of manufacturing overhead the rental
expense on the firm’s rental facilities. This inclusion would:
a. overstate period expenses on the income statement.
b. overstate the cost of goods sold on the income statement.
c. understate the cost of goods manufactured.
d. have no effect on the cost of goods manufactured

23. Cost of goods manufactured will usually include:

a. only cost incurred during the current period.
b. only direct labor and direct materials costs.
c. some costs incurred during the prior period as well as costs incurred during
the current period.
d. some period costs as well as some product costs.

24. An example of a fixed cost that would be considered a direct cost is:
a. a cost accountant’s salary when the cost object is a unit of product.
b. the natural cost of a warehouse to store finished goods when the cost of
object is the Purchasing Department.
c. a production supervisor’s salary when the cost objective is the Production
Department.
d. Board of Director’s fees when the cost object is the Marketing Department.
(CMA, adapted)

25. Buffy Company rents out a small unused portion of its factory to another
company for P1,000 per month. The rental agreement will expire next month,
and rather than renew the agreement Buffy Company is thinking about using the
space itself to store materials. The term to describe the P1,000 per month is:
a. sunk cost. c. opportunity cost.
b. period cost. d. variable cost.

26. The cost associated with idle time should be:

a. included as part of direct labor cost.
 b. treated as part of manufacturing overhead.
c. added directly to cost of goods sold for the period.
d. Included as part of selling and administrative expenses.

27. A direct labor overtime premium should be charged to a specific job when the
overtime is caused by the:
a. increased overall level of activity in the factory.
b. customer’s requirement for early completion of the job.
c. management’s failure to include the job in the production schedule.
d. Management’s requirement that the job be completed before the annual
factory closure due to vacation.

28. Cost which are inventoriable are

a. manufacturing costs incurred to produce units of output.
b. all costs associated with manufacturing other than direct labor costs and raw
material costs.
c. costs which are associated with marketing, shipping, warehousing, billing
activities.
d. the sum of direct labor costs and all factory overhead costs.
(CMA, adapted)

29. For external reporting

a. costs are classified as either inventoriable or period costs.
b. costs reflect current values.
c. there are no prescribed rules since no one is exactly sure how investors and
creditors will use these numbers.
d. costs include amounts that reflect both current and future benefits.

30. Ryan Soh is paid P10 an hour for straight-time and P15 an hour for overtime.
One week he worked 45 hours, which included 5 hours of overtime, and 3 hours
of idle time caused by material shortages. Compensation would be reported as
a. P370 of direct labor and P105 of manufactured overhead.
b. P420 of direct labor and P55 of manufactured overhead.
c. P450 of direct labor and P25 of manufactured overhead.
d. P445 of direct labor and P30 of manufactured overhead.

IV. Problems

Problem 1

Francis Andres has been working a part-time job that pays P1,100 a month. His
employer has offered to convert the into a full-time position at P1,500 a month.
Take home pay is 70 percent of these amounts. In view of this offer, Francis is
tempted not to return to school for the coming year. His friend Josie is trying to
convince him to return to school. Francis remarks, “I’ve been talking to other
friend and no matter how you figure it, school is extremely expensive. Tuition is
about P2,200 per year. Books and supplies are another P300. Room and board
will cost P3,700 a year even if I share a room. It costs P2,400 a year to keep up
my car and clothing, and other incidentals amount to about P3,000 per year. I
figure school will cost me the total of all these costs, which is P11,600 plus my
lost salary of P18,000 per year. At P29,600 a year, who can justify higher
education?”

If you were Josie, how would you respond to Francis’ remarks?

Problem 2

Pat Cruz, an independent engineer, has been invited to bid on a contract

engineering project. Pat is not the only bidder on the project. Pat wants the bid
only if it will return an adequate profit for the time and effort involved. The
contract calls for 250 hours of Pat’s time. The following cost data have been
extracted from Pat’s records and are not expected to change for the contract
period.
Per Hour
Normal consulting rate P100
Office costs, secretary, etc. (38)
Travel, other variable costs (22)
Normal “profit” per hour P 40
Billable hours (typical week) 30

The hourly rate for the office costs, secretary, etc. is based on a fixed cost of
P1,140 per week divided by the 30 billable hours per typical week. However,
these costs are fixed regardless of the number of hours Pat works per week.
Under the contract, the travel and other expenses will be the same as for normal
consulting.

Required:
What is the relevant “cost” for Pat’s bid under each of the following independent
situations? Support your chosen cost basis.

a. Pat will work on the contract during hours that would otherwise not be billable
to other clients.

b. Pat will give up work for other clients to meet the time requirements under the
contract. No ill will would be generated as a result of accepting the contract.
c. Pat believes that the contract would be the start of a long-term business
relationship that could make up most of Pat’s time. The initial bid would have
to be close to the amount charged on subsequent projects. While Pat has the
time now to take the project without giving up clients, eventually Pat would
have to give up some other clients.

Problem 3

Tsokolate Corp. is a cookie company in Batangas City that produces and sells
chocolate chip cookies with extremely high quality and service. The owner would
like to identify the various costs incurred during each year in order to plan and
control the costs in the business. Tsokolate’s costs are the following (in
thousands of pesos):

Utilities for the bakery 2,100

Paper used in packaging product 90
Salaries and wages in the bakery 19,500
Cookie ingredients 35,000
Bakery labor and fringe benefits 1,300
Administrative costs 1,000
Bakery equipment maintenance 800
Depreciation of bakery plant and equipment 2,000
Uniforms 400
Insurance for the bakery 900
Rent for administration offices 17,200
Advertising 1,900
Boxes, bags, and cups used in the bakery 1,100
Manager’s salary 13,000
Overtime premiums 2,600
Idle time 500

Required:
What is the total amount of product costs?

Problem 4

Use the same information as presented in Problem 3.

Required:
What is the total amount of period costs?

Problem 5
Daisy Palisoc is a Partner in the consulting firm of Reyes, Santos and Dy. One of
the current clients is planning a mor expansion of its production facilities and has
asked Daisy to prepare projected financial and cost data to be used by her client
in requesting a long-term loan to finance the expansion. Daisy’s client has
suggested that she omit all “sunk” costs in her reports and use only differential
cost data.
a. List any “sunk” costs you can think of that would be omitted from Daisy’s
differential cost reports.
b. Why do you think the client suggested a differential cost basis for the
reports? If you were the financing agency manager, why might you want to
see the “sunk” costs that are omitted?

Problem 6

The following information has been taken from the accounting records of EH
Corporation for last year:
Selling expenses P70,000
Raw materials inventory, January 1 45,000
Raw materials inventory, December 31 30,000
Work in process inventory, January 1 90,000
Work in process inventory, December 31 50,000
Finished goods inventory, January 1 130,000
Finished goods inventory, December 31 105,000
Utilities factory 18,000
Direct labor cost
75,000
Depreciation, factory 81,000