Midterm Quiz 2 – ABC and Job Order Costing

Tower Company incurs about P860,000 in manufacturing overhead costs each month which has been
allocated to individual product lines based on their relative shares of direct labor hours (DLHrs). The
company works about 100,000 DLHrs per month. The company is concerned that using DLHrs is
inappropriate because some costs are driven by other activities. The following information regarding
cost pools and drivers has been developed:

Cost Driver Amount in Pool Amount of Activity

Direct Labor Hours P520,000 100,000
Number of batches 280,000 500
Engineering Design Changes 60,000 120
Total P860,000

The following data regarding two product lines of the company are presented:

Product AB Product CD
Direct Labor Hours 1,600 200
Number of batches 4 12
Engineering Design Changes 2 24

Product AB are produced in large batches, while Product CD are as special line that only a few customers
buy.

What is the overhead to be allocated to each product line using DLHrs as the only cost driver? (Product
AB and CD respectively)

a) P13,760 and P1,270

b) P13,760 and P1,720
c) P14,000 and P7,120
d) P14,760 and P2,170

What is the overhead to be allocated to each product line using the Activity Based Costing? (Product AB
and CD respectively)

a) P11,560 and P14,760

b) P10,760 and P14,760
c) P11,560 and P19,760
d) P10,760 and P14,670
Pablo Company produces two types of products: Product RR and Product SS. The president of the
company decided to change from unit-based, traditional costing system to an activity-based costing
system.

To assess the effect of the change, the following data have been gathered (for simplicity, assume on
process):

Quantity Prime Costs Machine Hrs Material Moves Setup

Product RR 400,000 800,000 100,000 200,000 100
Product SS 100,000 150,000 25,000 100,000 50
Peso Value 950,000 500,000* 850,000 650,000
*The cost of operating production equipment.

Under the current system, the cost of operating equipment, material handling, and setup are assigned
to products on the basis of machine hours. Products are produced and moved in batches.

Under the traditional costing system, what is the unit cost of each product (Product RR and Product SS
respectively?

a) P6.00 and P5.50

b) P6.50 and 5.00
c) P6.00 and P6.50
d) P6.50 and P5.50

What is the unit cost of each product using the activity-based costing system (Product RR and Product SS
respectively?

a) P5.50 and P6.00

b) P5.50 and P7.50
c) P6.00 and P7.50
d) P7.50 and P5.50

Dai Company uses job order costing. At the beginning of May, two jobs were in process:

Job 769 Job 772

Direct Materials 4,000 1,400
Direct labor 2,000 600
Applied Factory overhead 3,000 900
There was no inventory of finished goods on May 1. During the month Jobs 773, 774, 776, 778 and 779
were started.

Materials requisitions for May totaled P26,000, direct labor cost, P20,000 and actual factory overhead,
P32,000. Factory overhead is applied base on the rate develop at the start of the year.

The only job still in process at the end of May is job number 779 with costs of P2,800 for materials and
P1,800 for direct labor.

Job 776, the only finished job on hand at the May, has a total cost of P4,000.
Compute for the month of May prime cost and conversion cost respectively.

a) 52,000 and 50,000

b) 46,000 and 50,000
c) 58,000 and 46,000
d) 46,000 and 58,000

Compute for the month of May cost of goods manufactured and cost of goods sold normal respectively?

a) 80,600 and 78,600

b) 76,600 and 78,600
c) 80,600 and 76,600
d) 76,600 and 80,600

Sway Company uses normal costing in its job costing system. Account balances and other information
for the year ended December 31, 2020 were as follows:

Materials 1/1 – P30,000 Work in Process 1/1 – P20,000 Finished Goods 1/1 – P10,000

 Direct labor rate for the was P15 per hour.

 Manufacturing overhead was applied at P20 per direct labor hour.
 During the year, sales revenue was P1,090,000 and marketing expenses were P140,000.
 At the end of the year, finished goods inventory balance shows an increase of 400% compared to
balance at the start of the year. Work in Process account balance at the end is 15 times as large as
work in process at the start, while Materials account balance at the end of the year increased by
P18,000.
 During the year the company purchased materials for P400,000 and incurred and paid direct labor
cost of P360,000. The actual factory overhead totaled P540,000 which includes indirect material of
P2,000.

What was the cost of the completed jobs for 2020?

a) 940,000
b) 900,000
c) 950,000
d) 942,000

Compute for the amount of direct materials issued to production during 2020.

a) 350,000
b) 380,000
c) 360,000
d) 382,000

What is the operating income(loss) for 2020 assuming the under or overapplied overhead is closed to
cost of goods sold?

a) (10,000)
b) 10,000
c) (12,000)
 d) (22,000)

What is the operating income(loss) for 2020 assuming the under or overapplied overhead is prorated to
the related accounts?

a) (5,706)
b) 4,800
c) 6,800
d) 4,773

Your asked to bring the following incomplete Gais Co. accounts up to date through May 2020. Also,
consider the additional information that follows the T accounts:

Direct Materials Control Accounts Payable

10,000 Bal. 5/1
20,000 Bal. 5/31

Work in Process Control Factory Overhead Control

Bal. 5/1 2,000 55,000

Finished Goods Control Cost of Goods Sold

Bal. 5/1 25,000

Additional information:

a) The overhead is applied using a budget rate that is set at the beginning of each year by
forecasting the year’s overhead and relating it to forecasted machine hours. The budget for
2020 called for a total of 15,000 machine hours and P750,000 of factory overhead.
b) The accounts payable are for direct materials only. The balance on May 31 was P12,000. Cash
payments related to this account of P77,500 was made during May. Purchase return during the
month is P1,500 while purchase discount is P500.
c) The finished goods inventory as of May 31 was P7,000.
 d) The cost of goods sold during the month was P165,000. This amount already includes the under/
(over) applied overhead.
e) On May 31 there was only one job unfinished in the factory. Cost records show that P1,000 (40
hours) of direct labor and P2,000 of direct materials had been charged to the job. Thirty
machine hours were used on the job.
f) A total of 940 direct labor hours were worked during the month of May. All factory worker earns
the same rate of pay.
g) All actual factory overhead incurred during May has already been posted and this includes the
indirect materials of P1,750.
h) A total of 1,000 machine hours was used during May.
1) How much was the purchased of Materials for the month of May? 81,500
2) Compute for the Cost of goods completed during May. 146,750
3) How much was the Overhead Applied for the month of May? 50,000
4) Determine the May 31 balance of Work in process. 4,500
5) Compute for the Direct Materials used during May. 75,750
6) How much was the balance of the Direct Material Control as of April 30? 16,250
7) Compute for the under/(over) applied overhead for the month of May. 5,000

Sai’s Corporation manufactures two models of high-pressure steam valves, XXX-5 model and AAA-1
model. Data regarding the two products follow:

Product Direct Labor Hours Annual Production Total Direct labor Hours
XXX-5 0.2 DLHrs/unit 20,000 units 4,000 DLHrs
AAA-1 0.4 DLHrs/unit 40,000 units 16,000 DLHrs
Total 20,000 DLHrs

Additional information about the company follows:

a) Product XXX-5 requires P35 in direct materials per unit, and Product AAA-1 requires P25.
b) The direct labor rate is P20 per hour.
c) The company has always used direct labor hours as the base for applying manufacturing overhead
cost to products. Manufacturing overhead totals P1,480,000 per year.
d) Product XXX-5 is more complex to manufacture than product AAA-1 and requires the use of special
milling machine.
e) Because of the special work required to manufacture product XXX-5, the company is considering the
use of activity-based costing to apply overhead cost to products. Three activity cost pools have been
identified and the first-stage allocation have been completed. Data concerning these activity cost
pools appear below:

Activity Activity Estimated Estimated Total Activity

Cost Pool Measure Total Cost XXX-5 AAA-1 Total
Machine Setups Number of Setups 180,000 150 100 250
Special Milling Machine Hours 300,000 1,000 0 1,000
 General Factory Direct Labor Hours 1,300,000 4,000 16,000 20,000

1) Compute for the budgeted units of production for XXX-5 and AAA-1 respectively. 25,000 and
37,500
2) Compute for the unit cost of product XXX-5 and product AAA-1 respectively, using the
traditional costing system. P53.80 and P62.60
3) Compute for the unit cost of product XXX-5 and product AAA-1 respectively, using the ABC
system. P68.32 and P60.92