Justine D.

Nalua Cost Accounting

BSA 1-1 Prelim (Chapter1-

3)

QUESTIONS (CHAPTER 1)

1. Define Financial Accounting – Financial accounting is use of accounting information

for reporting to external parties, including investors and creditors. Financial
accounting is a branch of accounting that involves recording, summarizing and
reporting. It is also primarily concerned with financial statement for external users.
Financial accounting focuses on the external users which are the people who
supply funds, Investors and creditors. Financial accounting is based on historical
transaction data.
2. Define Management Accounting-Managerial accounting focusses on the needs of
parties within the organization, rather than interested parties outside the
organization. The information may be current or forecasted, quantitative or
qualitative. Management Accounting is almost the same of financial accounting,
but it focuses on the Internal Users. Management accounting they are the one that
provides accounting information. It is also more concerned on the timelines of
information and focuses on the needs of the internal users.
3. How does management accounting serve both external users and internal users? –
Management accounting serves both external and internal users. It is because the
financial accounting data are also used in the management accounting.
Management accounting also reports to external users about accounting
information but it really focuses on internal users. Management decisions made
today will affect the financial statement of future periods. That why management
accounting is both serving external and internal users.
4. What are the difference between financial accounting and managerial accounting?
– The difference between the two is Financial accounting focuses on the external
users. While the Managerial accounting focuses on the internal user. Managerial
accounting focusses on the needs of parties within the organization, rather than
interested parties outside the organization. Financial accounting is use of
accounting information for reporting to external parties, including investors and
creditors. They also have similarities but the major difference between the two is
Financial accounting is more focus on presenting accounting information to
external while the Managerial accounting is more focus within the Internal users.
5. Why managerial accounting information more “future oriented” than financial
accounting? - Because Managerial accounting are current or forecasted, and
focuses on improving and wants to earn revenue and thinking what they can do to
have revenue. Management accounting they are the one that provides accounting
information. It is also more concerned on the timelines of information and focuses
on the needs of the internal users. On the other hand Financial accounting is more
focus on accounting data reporting that can help improve the managerial
accounting.
6. Discuss the relationship between goals, planning, and controls. – The relation
between goals, planning and control is they are method on achieving something.
Goals are the objectives while Planning is a method on how to achieve the goals.
Control is an action done after planning and determining if the objectives identified
in the planning process are being accomplished. Goals, Planning and Controlling
are the key on achieving objectives. It provides a means of coordinating all of the
operations of firm.
7. Identify and define the three levels of planning – The three levels of planning are
Strategic planning, Tactical planning and Operations Planning. Strategic planning is
more concerned with setting long range goals and objectives. Tactical planning is
more concerned on plans for a shorter range goals and emphasize plans to achieve
the strategic goals. Operation planning is the day to day implementation of tactical
plans. These three are the three levels of planning.
8. Differentiate job order costing from process costing – Job order costing and process
costing are the two traditional basis approaches to product cost accounting
system. The objective of the two systems is the same. They both provide product
unit cost information for pricing, cost control, inventory valuation, and income
statement preparation. Job order costing is a system for allocating cost to groups
of unique product. Process costing is a system to a continuous process of
production of the same or similar goods.
9. What are the main characteristics of Job order costing – Job order costing is a
system for allocating cost to groups of unique product. It is used by companies
making one of the kind or special products. It collects all manufacturing costs and
assigns them to specific job. It measures cost for each completed job, rather than
for set time period. It uses just one work in process inventory control account in
the general ledger.
10. What are the main characteristics of Process costing – Process costing is a
system to a continuous process of production of the same or similar goods. It used
by companies that make a large number of similar products or maintain a
continuous production flow. Companies producing paint, oil and gas, automobiles
use some form of a process costing system. It emphasizes a weekly or monthly
time period rather than the time taken to complete specific order. It uses several
works in process inventory accounts.
11. What method must be used by a company manufacturing school bags – The
method that the company of manufacturing school bags uses is Job order costing.
It is because bags are a unique product. Job order costing because it allocates the
cost base to the groups of unique products. Job order costing is a costing system
used by companies making one of the kind products. That’s why it is Job order
costing.
12. What method must be used by a company manufacturing aircrafts – The
method that the company of manufacturing aircrafts uses is also Job order costing.
Because job order costing system include those that make shops, airplanes, large
machines, and special orders. Job order costing because it allocates the cost base
to the groups of unique products. Job order costing is a costing system used by
companies making one of the kind products. That’s why Aircrafts use the Job order
costing method.
13. What method must be used by a company manufacturing candies –The
method that the company of manufacturing candies uses Process costing. Because
process costing is a system applicable to a continuous process of production of
similar goods. Also process costing system used by companies that make a large
number of similar products. Candies is a continuous process. That’s why it is a
Process costing,
14. What method must be used by a beer manufacturing company – The method
that the company of beer manufacturing uses Process costing also. Because
process costing is a system applicable to a continuous process of production of
similar goods. Also process costing system used by companies that make a large
number of similar products. Beer is made continuously. That’s why it is a Process
costing,
15. What method must be used by a company tennis ball – The method that the
company of manufacturing tennis balls uses is Job order costing. It is because
tennis balls are a unique product. Job order costing because it allocates the cost
base to the groups of unique products. Job order costing is a costing system used
by companies making one of the kind products. That’s why it is Job order costing.
MULTIPLE CHOICES (CHAPTER 1)

1. Financial statements for external users can be describe as

a.) User-specific
b.) General Purpose
c.) Special Purpose
d.) Management reports

Answer: Letter B because, General purpose financial statements are those financial
statements released to a broad group of users. They are intended for a wide range
of uses, such as credit analysis and stock valuations. That’s why my answer is
letter B

2. Planning is a function that involves

a.) Hiring the right people for a particular job
b.) Coordinating the accounting information system
c.) Setting goals and objectives for an entity
d.) Analyzing financial statements.

Answer: Letter C because, the description of Planning is Setting goals and

objectives for an entity. Also because none of the other choices is right and fits the
description of Planning. Other choice doesn’t make sense that why my answer is C.

3. Which of the following is not a management function?

a.) Constraining
b.) Planning
c.) Controlling
d.) Directing and motivating

Answer: Letter A because, the other choices are part of management function.
Constraining is defined as to force, compel, or oblige, and that is not part of the
management function. That’s why my answer is Letter A.

4. A manager that is establishing objectives is performing which management

function?
a.) Motivating
b.) Directing
c.) Planning
d.) Constraining

Answer: Letter C because, Planning is a process of establishing objectives. Also

Planning is the only suitable choices for the question. The other choices are not
applicable to “establishing objectives” only the letter C.

5. Management accounting information is generally prepared for

a.) Stockholders
b.) Creditors
c.) Managers
d.) Regulatory agencies

Answer: Letter C because, Management accounting provides the information in

such a way to the managers/management so that any economic decision can be
taken.
6. Financial accounting information is used for reporting
a.) External parties
b.) Investors
c.) Creditors
d.) Managers

Answer: Letter A because, the other choices Investors and creditors are both
External Users. While the choice d.) Managers are for managerial Accounting. That
why my answer is Letter A because the right answer is External parties

7. Internal reports are generally

a.) Aggregated
b.) Detailed
c.) Regulated
d.) Unreliable

Answer: Letter B because, Internal reports are usually a detailed report.

8. Which of the following is not an internal user?

a.) Creditor
b.) Department manager
c.) Cost accounting
d.) Controller

Answer: Letter A because, creditor is an external user. The other choices suit to
internal user. That’s why answer is letter A.

9. Managerial accounting is also called

a.) Management accounting
b.) Controlling
c.) Analytical accounting
d.) Inside reporting

Answer: Letter A because, the other choices are the characteristic of managerial
accounting. Managerial accounting is also called Management Accounting. That’s
why my answer is letter A.

10. Management accountants would not

a.) Assist in budget planning
b.) Prepare reports primarily for external users
c.) Determine cost behavior
d.) Be connected with the impact of cost and volume on profits

Answer: Letter B because, Management accounting focuses on Internal user.

External users are for financial accounting. That why my answer is letter B.
Justine D. Nalua Cost Accounting

BSA 1-1 Prelim (Chapter1-

3)

QUESTIONS (CHAPTER 2)

1. In what way does a typical manufacturing business differ from a merchandising

concern? In what ways are they are similar? – Manufacturing Business is a process
involves the conversion of raw materials into finished goods. In merchandising
company they buy items in the market and they resold to their customers.
Manufacturing performs basically the same functions as the merchandising in
storing and marketing the goods. Manufacturing business are similar to those of a
merchandising business. Both are concerned with purchasing, storing and selling
goods.
2. What are the basic elements of production cost? – the basic elements of production
cost are Direct materials, Direct labor and factory overhead. Direct materials are
those materials and supplies that are consumed during the manufacture of a
product, and which are directly identified with that product. Direct labor is labor
involved in production rather than administration, maintenance, and other support
services. While factory overhead is the costs incurred during the manufacturing
process, not including the costs of direct labor and direct materials.
3. Define the following costs
a.) Direct materials – Direct materials are the materials that are integral to the
product and easily identified.
b.) Indirect material - Indirect materials are materials used in the production
process, but which cannot be linked to a specific product or job.
c.) Direct labor - Direct Labor refers to the employees and temporary staff who
work directly on a manufacturer's products.
d.) Indirect labor - Indirect labor refers to employees who work on tasks that
contribute to the company's performance outside of producing products and
services.
e.) Factory overhead – Factory overhead is a catchall for manufacturing cost that
cannot be classified as direct materials or direct labor cost.
4. Define Prime cost and Conversion cost - Prime costs are a firm's expenses directly
related to the materials and labor used in production. Example of prime costs is
Direct materials. Conversion costs are the costs involved in converting the direct
material into the product and therefore are direct labor and manufacturing
overhead. Examples of costs that may be considered conversion costs is Direct
labor and related benefits and payroll taxes.
5. Does Prime cost plus conversion cost equal to the total manufacturing cost? – No
Because Prime cost formula is Prime cost = Direct labor + Direct Materials.
Conversion cost formula Conversion Cost = Direct labor + Factory overhead. The
two both use direct labor and that’s why Prime and conversion cost are not equal
to the total manufacturing cost. Because the formula of the total manufacturing
cost is Total Manufacturing cost = Direct materials + Direct labor + Factory
Overhead.
6. In what way does the accounting treatment of factory overhead differ from that of
direct material and direct labor costs? - – Factory overhead is a catchall for
manufacturing cost that cannot be classified as direct materials or direct labor
cost. Direct materials and direct labor is two different things. Direct Labor refers to
the employees and temporary staff who work directly on a manufacturer's
 products. While the Direct materials are the materials that are integral to the
product and easily identified.
7. Explain why the fixed cost per unit declines as volume increases. - Fixed cost per
unit changes because of the changes in the level of production. When production
level increases. The total fixed cost remains the same. But the number of units
produced increases and vice versa. Therefore, Fixed Cost per unit is inversely
proportional to the level of production.
8. Give examples of variable overhead cost and fixed overhead costs - Fixed overhead
costs are the same amount every month. These overhead costs do not fluctuate
with business activity. Fixed costs include rent and mortgage payments, some
utilities, insurance, property taxes, depreciation of assets, annual salaries, and
government fees. variable costs are sales commissions, direct labor costs, cost of
raw materials used in production, and utility costs. The total variable cost is simply
the quantity of output multiplied by the variable cost per unit of output.
9. How would you classify the monthly bill (plan) for a Smart/Globe cellphone? -
10. Consider education as a product. What are
the direct costs and indirect costs to a university in educating a student?
PROBLEM SOLVING (CHAPTER 2)

Problem#1 -The financial statements of Mother Goose Company included these items:

Marketing Costs 160.000

Direct Labor Cost 245,000

Administrative Costs 145,000

Direct Materials used 285,000

Fixed Factory overhead costs 175,000

Variable Factory overhead costs 155,000

Compute for the following

1. Prime Cost
2. Conversion Cost
3. Total Inventoriable/product cost
4. Total period cost

Solution:

1. Prime costs - 530,000 (285,000 + 245,000=530,00)

Direct materials + Direct labor
2. Conversion cost - 575,000 (245,000 + 175,000 + 155,000=575,000)
Direct labor + Factory overhead
3. Inventoriable cost – 860,000 (285,000 + 245,000 + 175,000 + 155,000= 860,000)
Direct materials + Direct labor + Factory overhead
4. Total period costs - 305,000 (160,000 + 145,000= 305,000)
Marketing cost + administrative cost
PROBLEM#2- Kyrie Company produces different sizes of basketballs. The Following cost
were incurred during the year.

Materials 65,000 (15,000 is indirect)

Labor 70,000 (18,000 is indirect)

Factory overhead 95,000 (including indirect materials and

indirect labor)

General and administrative expenses 2,600

Office Salaries 18,600

There were no work in process at the end of the year, 5,000 units were produced, and
90% of the units produced were sold.

Required:

1. Compute the prime cost

2. Compute the conversion cost
3. Compute the total product cost
4. Compute the total period cost
5. If the selling price is 50, how much is the net income

Solution:

1. Prime Cost – 135,000 (Direct Materials + Direct Labor= 135,000)

2. Conversion Cost – 165,000 (Direct Labor + Factory Overhead= 165,000)
3. Product cost – 230,000 (Direct materials + Direct labor + Factory overhead=
230,000)
4. Period Cost – 21,200 (General administrative expense + Office salaries= 21,200)
5. 5,000x90% = 4,500 (4,500 units were sold)
Selling price is 50 so 4,500x50= 225,000
Net Income= 203,800 (Total revenue – Total expenses= 203,800)
MULTIPLE CHOICES (CHAPTER 2)

1. Indirect material cost is a

Conversion Prime
a.) No No
b.) No Yes
c.) Yes Yes
d.) Yes No

Answer: Letter D because, Indirect cost is a conversion cost incurred when turning raw
materials into a product. Prime cost is the cost directly related to creating finished
products. That’s why my answer is Letter D

2. Direct labor cost is a

Conversion Prime
a.) No No
b.) No Yes
c.) Yes Yes
d.) Yes No

Answer: Letter C because, Direct labor is a prime cost and also a conversion cost. Prime
costs are defined as the expenditures directly related to creating finished products. While
conversion costs are the expenses incurred when turning raw materials into a product.

3. Indirect labor is
a.) Prime cost
b.) Conversion cost
c.) Period cost
d.) Non-manufacturing cost

Answer: Letter C because, Indirect labor is not part of prime and conversion cost. Indirect
labor is part of period cost. That’s why I answered letter C because it is the only answer.

4. In a job order costing system, manufacturing overhead is

An indirect cost of job a necessary element of production
a.) No Yes
b.) No No
c.) Yes Yes
d.) Yes No

Answer: Letter C because, manufacturing overhead is an indirect cost of the job. It is also
necessary to production. That’s why my answer is letter C

5. Prime cost and conversion cost share what common element of total cost
a.) Variable cost
b.) Fixed overhead
c.) Direct materials
d.) Direct labor

Answer: Letter A because Total cost is the total economic cost of production and is made
up of variable cost. That’s why my answer is letter A

6. Which of the following is an element of prime cost

Direct materials Direct labor
a.) Yes Yes
b.) Yes No
 c.) No Yes
d.) No No

Answer: Letter A because Direct material and direct labor is a Prime cost. Prime costs are
defined as the expenditures directly related to creating finished products. That’s why my
answer is letter A

7. Cost that vary inversely with changes in volume included

a.) Total variable cost
b.) Total variable cost divided by volume
c.) Total fixed cost
d.) Total fixed cost divided by volume

Answer: Letter D because,

8. When a unit of product is the cost object, factory overhead generally is:
a.) A direct manufacturing cost
b.) An indirect manufacturing cost
c.) Both of the above
d.) None of the above

Answer:

9. Factory rent is
a.) A prime cost and an inventoriable cost
b.) A prime cost and a period cost
c.) A conversion cost and an inventoriable cost
d.) A conversion cost and a period cost

Answer: Letter D because, Factory rent is a conversion cost and it is recorded as period
cost. The other choices are not suitable with the question. That’s why my answer is letter
D.

10. Example of factory overhead cost are

a.) Lubricants for factory machinery
b.) Depreciation of factory machinery
c.) Both of the above
d.) None of the above

Answer: Letter C because, Letter A and B are both Factory overhead. Lubricants for
factory machinery are indirect materials. While the depreciation is part of factory
overhead. That’s why my answer is letter C
MULTIPLE CHOICES PROBLEMS (CHAPTER 2)

The following costs relate to Antonio industries for the last quarter

Conversion cost 435,000

Direct materials 215,000

Manufacturing Overhead 190,000

Selling and administrative expense 185,000

1. What is Antonio’s prime cost last quarter?

a.) 460,000
b.) 410,000
c.) 405,000
d.) 375,000

Answer: Letter A (conversion cost-overhead=direct labor)(435,000-

190,00=245,000)Then compute the prime cost (Direct materials + Direct labor= Prime
cost) (215,000 + 245,000= 460,000)

2. Antonio’s total manufacturing cost is

a.) 460,000
b.) 645,000
c.) 650,000
d.) 840,000

Answer: Letter C (Direct materials + Direct labor + Factory overhead= Total

manufacturing cost) (215,000 + 245,000 + 190,000= 650,000)

3. Antonio’s total Period cost is

a.) 185,000
b.) 275,000
c.) 400,000
d.) 620,000

Ravena Company manufactures office furniture. During the most productive month of the
year, 3500 desks were manufactured at a total cost of 84,400. In its lowest month, the
company made 1.100 desk at a cost of 46,000

1. Using the high-low method of cost estimation, the total cost are
a.) 56,000
b.) 28,400
c.) 17,600
d.) 38,400

Answer: Letter D (84,400-46,000= 38,400)

2. The variable cost per unit is

a.) 16.00
b.) 15.00
c.) 14.00
d.) 17.00

Answer: Letter A (3,500-1,100= 2,400)then (38,400/2,400= 16)

Justine D. Nalua Cost Accounting
BSA 1-1 Prelim (Chapter1-
3)

PROBLEM SOLVING (CHAPTER 3)

Problem#1 – Marvin manufacturing company has develop the following information for
the year ended December 31, 2019

Raw Materials Inventory, Jan. 1 175,000

Purchases 250,000

Raw Material Inventory, Dec. 31 125,000

Direct Labor 270,000

Factory overhead (120% of direct labor cost)

Work in process inventory, Jan. 1 90,000

Work in process inventory, Dec. 31 120,000

Finished Goods Inventory, Jan. 1 100,000

Finished Goods Inventory, Dec. 31 80,000

Required: Cost of goods sold statement

Solution:

Marvin Manufacturing Company

Cost of Goods Sold Statement

For the year ended December 31, 2019

Direct materials used

Materials, January 1 175,000

Purchases 250,000

Total available for use 425,000

Less: Materials, December 31 125,000 300,000

Direct labor 270,000

Factory overhead 324,000

Total manufacturing cost 894,000

Work in process, January 1 90,000

Cost of goods put into process 984,000

Less: Work in process, December 31 120,000

Cost of goods manufactured 864,000

Finished goods, January 1 100,000

Total goods available for sale 964,000

Less: Finished goods, December 31 80,000

Cost of goods sold 884,000

Problem #2 – Donna Company submits the following data May, 2019

Direct Labor cost 160,000

 Cost of goods sold 550,000
Factory overhead – applied at 150% of direct labor cost

Inventories May 1, 2019 May 31, 2019

Finished goods 150,000 122,000

Work in process 129,200 124,000

Materials 124,000 115,000

Required: Cost of goods sold statement

Solution:

Donna Company

Cost of Goods Sold Statement

For the month of May, 2019

Direct materials used

Materials, May 1 124,000

Purchases 107,800

Total available for use 231,800

Less: Materials, May 31 115,000 116,800

Direct labor 160,000

Factory overhead 240,000

Total manufacturing cost 516,800

Work in process, May 1 129,200

Cost of goods put into process 646,000

Less: Work in process, May 31 124,000

Cost of goods manufactured 522,000

Finished goods, May 1 150,000

Total goods available for sale 672,000

Less: Finished goods, May 31 122,000

Cost of goods sold 550,000

MULTIPLE CHOICES (CHAPTER 3)

1. Cost of goods sold is

a.) An expenses
b.) A period cost
 c.) Is an asset
d.) None of the above

Answer: Letter C because, cost of goods sold is your profit in your products that is sold.
It is an asset because Profit is an asset. That’s why my answer is letter C

2. Which of the following would not be classified as manufacturing overhead?

a.) Indirect labor
b.) Direct labor
c.) Insurance on factory building
d.) Administrative expenses

Answer: Letter B because, Direct Labor is not part of manufacturing overhead. Direct
labor is part of prime cost and in manufacturing overhead all the cost are indirect. That’s
why my answer is letter B

3. The wage of a timekeeper in the factory would be classified as

a.) Prime cost
b.) Direct labor
c.) Indirect Labor
d.) Administrative expenses

Answer: Letter C because, the timekeeper is not directly working with the product. That’s
why it is an indirect cost. That’s why my answer is letter C

4. As current technology changes manufacturing process, it is likely that direct

a.) Labor will increase
b.) Labor will decrease
c.) Materials will increase
d.) Materials will decrease

Answer: Letter B because, as the technology improves, the manufacturing company will
just us technology instead of human power. Because of less Labor cost. That’s why my
answer is letter B

5. A company is more likely to use a job order cost system if

a.) It manufactures a large volume of similar products
b.) Its production is continuous
c.) It manufactures products with unique characteristics
d.) It uses a period inventory system

Answer: Letter C because, a job order cost system allocates cost to groups of unique
products. That’s why if a company use a job order cost system, their product should be
unique. That’s why my answer is letter C

6. When incurred, factory labor cost are debited to

a.) Work in process
b.) Factory wages expense
c.) Factory labor
d.) Payroll

Answer: Letter A because,

7. Cost of goods manufactured in manufacturing company is analogous to

a.) Ending inventory in a merchandising company
b.) Beginning inventory in a merchandising company
c.) Cost of goods available for sale in a merchandising company
d.) Cost of goods purchased in merchandising company

Answer:

8. A manufacturing company reports cost of goods manufactured as

a.) A current asset on the balance sheet
 b.) An administrative expense on the income statement
c.) A component in the calculation of cost of goods sold
d.) A component of the raw materials inventory on the balance sheet

Answer:

9. For inventoriable cost to become expenses under the matching principle,

a.) The product must be finished and in stock
b.) The product must be expensed based on its percentage o completion
c.) The product to which they attach must be sold
d.) All accounts payable must be settled
10. Sales commissions are classified as
a.) Prime cost
b.) Period cost
c.) Product cost
d.) Indirect labor

MULTIPLE CHOICES PROBLEM (CHAPETER 3)

Some selected sales and cost for Alcid Manufacturing Company are given below:

Direct materials used 100,000

Direct labor 150,000

Factory overhead (40% variable) 75,000

 Selling and administrative expenses

(50% direct 60% variable) 120,000

1. Prime cost was:

a.) 175,000
b.) 250,000
c.) 130,000
d.) 225,000

Answer: Letter B (Direct materials + Direct labor= Prime cost) (100,000 + 150,000=
250,000)

2. Conversion cost was:

a.) 150,000
b.) 225,000
c.) 310,000
d.) 325,000

Answer: Letter B (Direct labor + factory overhead= Conversion cost) (150,000 +

75,000= 225,000)

3. Direct cost was:

a.) 225,000
b.) 250,000
c.) 310,000
d.) 325,000

Answer: Letter C (Direct materials + Direct labor + 60,000= 310,000) (selling and
administrative expenses 50% of 120,000)

4. Indirect cost was:

a.) 75,000
b.) 135,000
c.) 195,000
d.) 325,000

Answer: Letter C (Factory overhead + selling and administrative expense= 195,000)

5. Product cost was:

a.) 135,000
b.) 250,000
c.) 325,000
d.) 370,000

Answer: Letter C (Direct materials + Direct labor + Factory overhead= 325,000)

Justine D. Nalua Cost Accounting

BSA 1-1 Midterm

(Chapter4-5)

PROBLEM SOLVING (CHAPTER 4)

Problem#1 – Candice Company’s projected profit for the coming year is as follows:

Total Per Unit

Sales 600,000 60

Variable cost 360,000 36

 Contribution margin 240,000 24
Fixed cost 192,000

Operating income 48,000

Required:

1. Compute the variable cost ratio

2. Compute the contribution ratio
3. Compute the break-even point in units
4. Compute the break-even point in pesos

Solution:

1. Variable Cost Ratio= 0.6 or 60%

Variable cost/ net sales (360,000/ 600,000= 0.6) or (36/ 60= 0.6)
2. Contribution Ratio= 0.4 or 40% (CMU/ selling price per unit=0.4)
Contribution margin= 24 (selling price – variable cost=24)
3. Break-even point in units= 8,000
(fixed cost/ sales per unit – variable cost per unit= 8,000)
4. Break-even point in pesos= 480,000
(Total fixed cost/ CM ratio= 480,00)

Problem#2 – Reno sell a product for 1,050 with variable cost of 630 Total fixed cost
amounted to 630,000

Required:

1. Compute for contribution margin per unit

2. Compute for contribution margin ratio
3. Compute for the breakeven point in units and ratio
4. If Reno wants to earn 94,500 how many units the company must sell?

Solution:
 1. Contribution margin per unit= 420 (Selling price – variable cost= 420)
2. Contribution margin ratio= 0.4 or 40% (CMU/selling price per unit= 0.4)
3. Breakeven point in units and ratio
BEP in Units= 1,500 (Fixed cost/ selling price per unit – variable cost per unit)
BEP in Peso= 1,575,000 (Total fixed cost/ CM ratio= 1,575,000)
4. Desired profits= 1,811,250
(fixed cost + 94,500 / CM ratio= 1,811,250)

MULTIPLE CHOICES (CHAPTER 4)

1. The systematic examination of the relationship among selling prices, volume of

sales and production costs and profits is called
a.) Contribution margin analysis
b.) Cost-volume-profit analysis
c.) Budgetary analysis
d.) Gross profit analysis

Answer: Letter B because, Cost-volume-profit analysis is estimates how changes in cost

and sales volume as well as the price affects a company profit. CVP is very useful in
making wise business decisions. That’s why my answer is letter B

2. CVP analysis allows management to determine the relative profitability of a

product by
a.) Determining potential bottlenecks in the production process
 b.) Determining the contribution margin per unit and projected profits at different
levels of production
c.) Assigning cost to a product in a manner that maximizes the contribution margin
d.) Keeping fixed cost in an absolute minimum

Answer: Letter B because, Cost-volume-profit analysis is a useful tool on Determining the

contribution margin per unit and projected profits at different levels of production. That’s
why my answer is letter B.

3. The most important information derived from a breakeven chart is the

a.) Amount of sales needed to cover the variable cost
b.) Amount of sales needed to cover the fixed cost
c.) Relationship among revenues, variable cost, fixed cost at different levels of
activity
d.) Volume or output level at which the enterprise breaks even

Answer: Letter C because, Breakeven is where total revenue equals total cost. Also
breakeven point has relationship with revenues, variable coast and fixed cost at different
level of production. That’s why my answer is letter C.

4. Companies with a high degree of operating leverage

a.) Wil have a more significant shift in income as sales volume changes
b.) Have fewer fixed costs
c.) Have low contribution margin ratios
d.) Are less dependent on volume to add profits

Answer: Letter A because, when a company has high operating leverage it has a high
percentage of fixed costs to total costs, which means more units have to be sold to cover
costs. But when a company has low operating leverage it has a high percentage of
variable costs to total costs, which means fewer units have to be sold to cover costs.
That’s why my answer is letter A.

5. A company’s break-even point would be increased

a.) An increase in fixed cost
b.) A decrease in contribution margin ratio
c.) A decrease in selling price
d.) A decrease in variable cost per unit

Answer: Letter A because, the break-even point will increase when the amount of fixed
costs and expenses increases. The break-even point will also increase when the variable
expenses increase without a corresponding increase in the selling prices. That’s why my
answer is letter A

6. If the variable cost per unit decreases while selling price decreases, the new
variable cost ratio in relation to the old variable cost ratio will be
a.) Higher
b.) Lower
c.) The same
d.) Not enough information provided

Answer: stated choose

7. CVP analysis is a simple but powerful tool to assist management at different stages
of decision making process, which of the following does not represent a primary of
the CVP model
a.) Ability to compute the break-even point
b.) Ability to find target sales volume
 c.) Aids in evaluating tax planning alternatives
d.) Aids in determining optimal pricing policies

Answer:

8. A decrease in margin of safety would be caused by

a.) An increase in total fixed cost
b.) An increase in total actual sales
c.) A decrease in variable cost per unit
d.) A decrease in the selling price per unit

Answer:

9. If the fixed cost for a product decrease and the variable cost (as a percentage of
peso sales) decrease, what will be the effect on the contribution margin ratio and
the break-even point respectively

Contribution margin ratio Break-even point

a.) Decrease Increase

b.) Increase Decrease
c.) Decrease Decrease
d.) Increase Increase

Answer:

10. If the sales mix shifts toward the higher contribution margin products, what
would happen to the break-even point
a.) Decrease
b.) Increase
c.) Remains constant
d.) Requires additional information

Answer:
MULTIPLE CHOICHES PROBLEM (CHAPTER 4)

The avengers company is trying to do cost volume profit analysis with the following
information for the month of august

Sales 1,100,000
Total fixed cost 280,000

Total variable cost 660,000 24

Unit price 40

1. The operating income of the avengers company is

a.) 160,000
b.) 190,000
c.) 240,000
d.) 440,000
2. What is the break-even point in units
a.) 14,000 units
b.) 25,000 units
c.) 28,000 units
d.) 35,000 units
3. If the company desires a profit of 80,000, how many must be sold?
a.) 30,000 units
b.) 35,000 units
c.) 36,000 units
d.) 45,000 units
4. The margin of safety is
a.) 100,000
b.) 200,000
c.) 300,000
d.) 400,000

The orange company plans to sell a new product. The selling price is expected to be 150
per unit. The company is able to produce 15,000 units but the company’s marketing
manager feels that a more realistic level of sales would be 12,000 units variable cost is
estimated at 70 per unit. Total fixed cost will be 900,000

5. The break-even sales

a.) 10,000 units
b.) 11,250 units
c.) 16,000 units
d.) 18,000 units

Justine D. Nalua Cost Accounting

BSA 1-1 Midterm
(Chapter4-5)

QUESTIONS (CHAPTER 5)

1. When is job order costing appropriate, and how are cost accumulated in a job order
cost system?
-
2. When is process costing appropriate, and how are cost accumulated in a process
cost system?
3. How is cost accounting related to financial accounting
4. Distinguish between cost of goods sold and cost of goods manufactured
5. What is a job cost sheet and why is it useful?
6. What is the primary cost accumulation T accounts used in job order costing
system?
7. What document is used to support the transfer of direct materials from materials
inventory to work in process?
8. In what way does the accounting treatment of direct materials and direct labor
costs differ from that of factory overhead?
9. What documents constitute the supporting subsidiary ledger for work in process
when using a job order costing system?
10. What are the two entries typically required all the time finished units are
sold?
MULTIPLE CHOICES (CHAPTER 5)

1. Under the job order cost system, purchases of direct materials are debited to:
a.) Purchases
b.) Work in process control
c.) Factory overhead control
d.) None of the above

Answer: Letter because, In job order

2. Under the job cost system, issues of direct materials are debited to:
a.) Factory overhead control
b.) Work in process control
c.) Materials control
d.) None of the above
3. In job order costing what journal entry should be made for the return to the
stockroom of direct materials previously issued to production for use on a
particular job?
a.) Debit materials and credit factory overhead
b.) Debit materials and credit work in process
c.) Debit purchase returns and credit work in process
d.) Debit work in process and credit materials
4. Under a job order costing system, the peso amount of the entry involved in the
transfer of inventory from work in process to finished goods is the sum of the costs
charged to all jobs:
a.) Started in process during the period
b.) In process during the period
c.) Complete and sold during the period
d.) Completed during the period
5. In a job order costing system, indirect labor used should be debited to:
a.) Payroll liability
b.) Work in process control
c.) Finished goods control
d.) Factory overhead control
6. Which of the following is the basic document that is used to accumulated the cost
of each order in job order costing:
a.) Invoice
b.) Purchased order
c.) Requisition sheet
d.) Job cost system
7. What is the best cost accumulation procedure to use when many batches, each
differing as to product specification, are produced?
a.) Job order
b.) Process
c.) Actual
d.) Standard
8. The most common treatment of under or over applied overhead is to close it to:
a.) Work in process
b.) Retained earnings
c.) Cost of goods sold
d.) Finished goods
9. A material requisition from normally does not contain which of the following?
a.) Vendor’s name
b.) Quantity requisitioned
c.) Unit cost
d.) Job number
10. A job order cost sheet normally does not contain which of the following?
a.) Direct materials
b.) Direct labor
c.) Actual factory overhead
d.) Applied factory overhead
PROBLEM SOLVING (CHAPTER 5)

Problem no. 1

Journal entry

1. Materials 56,000

Accounts payable 56,000

2. Work in process 44,000

Factory OH control 6,000
Materials 50,000
#
Materials issued to production
Job 401
Materials 11,000
Job 402
Materials 14,000
Job 403
Materials 19,000
44,000
3.
MULTIPLE CHOICES PROBLEM (CHAPTER 5)
Justine D. Nalua Cost Accounting

BSA 1-1 Pre Finals

(Chapter6-7)

PROBLEM SOLVING (CHAPTER 6)

Problem#1 – The smart manufacturing has a cycle time of 3.0 days, uses a raw and in
process account and charges all conversion costs to cost of goods sold. At the end of
each month, all inventories are counted, their conversion cost and components are
estimated and inventory account balances are adjusted. Raw materials cost is back
flushed from RIP to finished goods. The following information is for the month of June.

Materials purchased on credit 146,000

RIP beginning, including 4,000 of conversion costs 15,000

FG beginning, including 10,000 of conversion costs 36,000

RIP end, including 7,800 of conversion cost 24,000

FG end, including 6,500 of conversion cost 18,000

Conversion cost- 80,000 direct labor and 100,000 overhead

Required:
1. Compute for the amount of materials back flushed from RIP to Finished Goods
2. Compute for amount of materials back flushed from finished goods to CofGS
3. Journal entries to record the above transactions

Journal entry
Justine D. Nalua Cost Accounting

BSA 1-1 Pre Finals

(Chapter6-7)

QUESTIONS (CHAPTER 7)
1. What are the major objectives of materials control?
2. What factors should management consider in determining the amount of
investment in materials?
3. What is the meaning of “order point”?
4. What kind of information data are needed to calculate an order point?
5. Normally, a manufacturer maintains an accounting system which includes a stores
ledger and a general ledger account for materials. Describe the relationship
between the stores edger and the materials ledger.
6. A company may select an inventory costing method from a number of commonly
used procedures. Briefly describe each of the following methods
a. First-in, First- out
b. Moving average\
7. What different methods that can be used to account for the sales value of the
scrap materials?
8. What distinguishes a product as being spoiled or defective?
9. What are the different methods of accounting for spoiled units?
10. What are the different methods of accounting
for defective units?

PROBLEMS (CHAPTER 7)
MULTIPLE CHOICES (CHAPTER 7)
1. a