Illustration Problems

Problem 1:

YYY Corporation inventory balances on January 1, 2019 were as follows:

Raw Materials ₱35,000

Work in Process Inventory ₱52,000
Finished Goods Inventory ₱120,000

During the year, the following transactions were completed:

1. Raw materials were purchased on account, ₱612,000.

2. Raw materials were issued from the storeroom for use in production, ₱600,000 (80% direct and
20% indirect).

3. Salaries and wages of factory employees were incurred as follows: ₱850,000 direct labor; indirect
labor ₱350,000. The deductions were as follows: SSS premium ₱25,000, HDMF contribution
₱10,000, PhilHealth contribution ₱8,000 and withholding taxes of ₱50,000.

4. Selling and administrative salaries, ₱450,000. The deductions were as follows: SSS premium
₱12,000, HDMF contribution ₱8,000, PhilHealth contribution ₱5,000 and withholding taxes of
₱22,000.

5. Total salaries and wages paid amounted to ₱1,510,000

6. Utility costs were incurred in the factory, ₱145,000.

7. Advertising costs paid, ₱112,000.

8. Depreciation was recorded ₱230,000 (90% related to factory assets and 10% related to selling
and administrative expenses).

9. Factory overhead was applied to production at the rate of 95% of direct labor cost.

10. Goods completed amounting to ₱2,155,000 were transferred to the finished goods warehouse.

11. Sales for the year totaled ₱3,100,000 and were all on account. The total cost to manufacture
these goods was ₱2,230,000.

12. Collection of Accounts Receivable amounting to ₱2,800,000.

Required:

1. Prepare the journal entry on each transaction.

2. Compute the overapplied or underapplied factory overhead and provide the journal entry to close
the overapplied or underapplied factory overhead.
3. Provide the ending balance of the following:
a. Raw Materials Inventory
b. Work in Process Inventory
c. Finished Goods Inventory
4. Prepare the Cost of Goods Sold Statement.

Solution
1.
1 Raw Materials 612,000.00
Accounts Payable 612,000.00

2 Work in Process 480,000.00

Factory Overhead 120,000.00
Raw Materials 600,000.00

3 Work in Process 850,000.00

Factory Overhead 350,000.00
SSS Payable 25,000.00
HDMF Payable 10,000.00
PhilHeath Payable 8,000.00
Withholding Tax Payable 50,000.00
Salaries and Wages Payable 1,107,000.00

4 Salaries and Wages Expense 450,000.00

SSS Payable 12,000.00
HDMF Payable 8,000.00
PhilHeath Payable 5,000.00
Withholding Tax Payable 22,000.00
Salaries and Wages Payable 403,000.00

5 Salaries and Wages Payable 1,510,000.00

Cash 1,510,000.00

6 Factory Overhead 145,000.00

Utility payable 145,000.00

7 Advertising Expense 112,000.00

Cash 112,000.00
 8 Factory Overhead 207,000.00
Depreciation Expense 23,000.00
Accumulated Depreciation 230,000.00

9 Work in Process 807,500.00

Factory Overhead 807,500.00

10 Finished Goods 2,155,000.00

Work in Process 2,155,000.00

11 Cost of Goods Sold 2,230,000.00

Finished Goods 2,230,000.00

Accounts Receivable 3,100,000.00

Sales 3,100,000.00

12 Cash 2,800,000.00
Accounts Receivable 2,800,000.00

2.
Factory Overhead
120,000.00 807,500.00
350,000.00
145,000.00 Cost of Goods Sold 14,500.00
207,000.00 Underapplied FOH 14,500.00

14,500.00

3.
Raw Materials Work in Process Finished Goods
35,000.00 600,000.00 52,000.00 2,155,000.00 120,000.00 2,230,000.00
612,000.00 480,000.00 2,155,000.00
850,000.00
807,500.00

47,000.00 34,500.00 45,000.00

4.

Problem 2

Mr. WWW, controller of YYY Hospital, would like to come up with a cost formula that links emergency
department costs to the number of patients admitted during a month. The emergency department’s costs anf
number of patients admitted during the past nine months follows:

Month Number of Patients Emergency Department Cost

April 36 31,200.00
May 38 30,400.00
June 34 27,400.00
July 30 29,200.00
August 30 28,600.00
September 22 26,400.00
October 22 25,600.00
November 96* 145,000.00
December 32 28,000.00
Required: Using the high-low method, determine:
1. The variable cost per unit and annual fixed cost.
2. The department’s estimated cost, if 40 patients are expected to be admitted next month.

Solution
1.
Highest Activity 38 Patients; ₱30,400
Lowest Activity 22 Patients; ₱25,600

₱30,400 - ₱25,600
Variable Cost per Unit =
38 - 22
4800
16
Variable Cost per Unit = ₱300

Total Fixed Cost = ₱30,400 - (₱300*38)

= 30,400 – 11,400
= ₱19,000

or

Total Fixed Cost = ₱25,600 - (₱300*22)

= 25,600 – 6,600
= ₱19,000

2.
X = 40 patients
y = a + bX
y = 19,000 + 300X

y = 19,000 + (300*40)
= 19,000+ 12,000
= ₱31,000
Problem 3

FFF manufactures and sells a single product. A partially completed schedule of the company’s total and per
unit costs over a relevant range of 60 to 100 units produced each year is given below:

Required:

1. Compute the schedule by writing the missing amounts.

2. Which 2 specific costs remain constant over the relevant range?
3. Which 2 specific are directly related with production?
4. Which specific cost is inversely related with production?

1.
Fixed Costs = ₱600,000
Variable Costs per unit = ₱120 / 60 units
= ₱2

y = a + bX
60 Units 80 units 100 units
y = ₱600 + (2*60) y = ₱600 + (2*80) y = ₱600 + (2*100)
y = 600 + 120 y = 600 + 160 y = 600 + 200
y = ₱720 y = ₱760 y = ₱800
 2. Total Fixed Costs and Variable Cost per unit.
3. Total Costs and Total Variable Costs.
4. Fixed Cost per unit.

Problem 4

AAA Co. makes shirts that it sells to retailers. The company uses job order costing system in which
predetermined overhead rates are used to apply factory overhead cost to jobs. The predetermined rate in the
Sewing Department is based on machine hours and in Cutting Department is based on direct labor cost. The
following estimate are made at the beginning of the year:

Sewing Cutting
Direct Labor Hours 24,000 120,000
Machine Hours 140,000 10,000
Direct Material Cost 1,020,000 1,300,000
Direct Labor Cost 260,000 840,000
Factory Overhead Cost 1,204,000 1,470,000

Job 101 was started on Feb 1 and completed on Feb 25. The company’s cost records show the following
information concerning the job.

Sewing Cutting
Direct Labor Hours 60 170
Machine Hours 220 40
Material Used 940 664
Direct Labor Cost 580 1,360

At the end of the year, the records of the company show the actual cost and data for all the jobs worked
during the year.

Sewing Cutting
Direct Labor Hours 20,000 124,000
Machine Hours 130,000 18,000
Direct Material Cost 860,000 1,360,000
Direct Labor Cost 216,000 872,000
Factory Overhead Cost 1,140,000 1,500,000

Required:
1. Compute the factory overhead rate used in the Sewing and Cutting Department during the year.
2. Compute the total factory overhead cost applied to Job 101.
3. What would be the unit cost of the job 101?
4. How much is the over or under applied factory overhead in each department at the end of the year?
1.
Sewing Cutting
POHR = ₱1,204,000 / 140,000 machine hour POHR = ₱1,470,000 / ₱840,000
POHR = ₱8.6 per machine hour POHR = 175% of Direct Labor Cost

2.
Sewing Cutting
Applied FOH = POHR*machine hour Applied FOH = 175% of Direct labor cost
Applied FOH = ₱8.6*220 machine hour Applied FOH = 175% of ₱1,360

= ₱1,892.00 = ₱2,380.00

3.
Sewing Cutting
Material Used 940.00 664.00
Direct Labor Cost 580.00 1,360.00
FOH 1,892.00 2,380.00
3,412.00 4,404.00

Total Costs 7,816.00

4.
Sewing Cutting
Actual Overhead 1,140,000.00 1,500,000.00
Applied Overhead 1,204,000.00 1,470,000.00
(64,000.00) 30,000.00
Overapplied Underapplied