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Uploaded by Eunize Escalona Magsino on Apr 20, 2019
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MULTIPLE CHOICE – PROBLEM SOLVING

17.  Putnam Company manufactures computer stands. What is the Finished Goods Inventory, Beginning Balance if
Cost of Goods Sold is P 107,000; Finished Goods Inventory, Ending is P 20,000 and Cost of Goods Manufactured
is P 50,000 less than Cost of Goods Sold?
a.  P 70,000 b.  P 77,000 c.  P 157,000 d.  P 127,000
Solution:
We need to compute upward to arrive at the missing figure.

Cost of goods manufactured (107,000 – 50,000) 57,000

Add: Finished Goods Inventory, beginning ( 127,000-57,000)  70,000 ( Answer)
Equals: Total goods available for sale 127,000
Less: Finished Goods Inventory, end 20,000
Equals : Cost of goods sold 107,000

18.  The Childers Company manufactures widgets. During the fiscal year just ended, the company incurred prime
costs of P 1,500,000 and conversion costs of P 1,800,000. Overhead is applied at the rate of 200% of direct
labor cost. How much of the above costs represent material cost?
a.  P 1,500,000 b.  P 300,000 c.  P 900,000 d.  P 600,000

Solution:
We need to use the formula for prime cost and conversion cost in this problem.
Prime cost = Direct material + Direct labor
Conversion cost = Direct labor + Factory overhead
It is stated in the problem that factory overhead is applied at the rate of 200% of direct labor cost. That means
that our factory overhead is twice the amount of our direct labor. Putting it in equation form, to arrive at our
conversion cost:
1,800,000 = DL + 2DL ( represents factory overhead which is twice direct labor)
1,800,000 = 3DL
1,800,000 = 3DL
3 3
600,000 = DL
Requirement is to compute for material cost:
Using the formula in computing prime cost, we can arrive at the value of material cost:
Prime cost = direct materials + direct labor
1,500,000 = direct materials + 600,000
1,500,000 – 600,000 = direct materials
900,000 = direct matearials

19.  The following selected information pertains to Ajax Processing Co.: direct materials, P 62,500; indirect
materials, P 12,500; factory payroll, P 75,000 of direct labor and 11,250 of indirect labor; and other factory
overhead incurred, P 37,500.
The total conversion cost was:
a  P 136,250 b  P 137,500 c  P 250,000 d  P 273,750
Solution:
In computing for conversion cost, keep in mind that factory overhead includes indirect materials and indirect
labor, in addition to other factory overhead incurred as stated in the given.
Conversion cost = Direct labor + Factory overhead
Conversion cost = 75,000 + 12,500+11,250+37,500
Conversion cost = 136,250.00

20.  During the month of May, 2014, Candid Manufacturing Co. incurred P 30,000, P 40,000, and P 20,000 of direct
material, direct labor and factory overhead costs respectively. If the cost of goods manufactured was P 95,000
in total and the ending work in process was P 15,000, the beginning inventory of work in process must have been  
a.  P 10,000 b.  P 20,000 c.  P 110,000 d.  P 25,000

Solution: (Upward computation)

Manufacturing cost ( 30,000+40,000+20,000) 90,000
Add: Work in process, beginning 20,000 (Answer)

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Equals: Total goods placed in process 110,000

Less: Work in process, end 15,000
Equals Cost of goods manufactured 95,000

21.  During the month of January, F Co,’s direct labor cost totalled P 36,000, and direct labor cost was P 60% of
prime cost. If total manufacturing costs during January were P 85,000, the manufacturing overhead was:
a.  P 24,000 b.  P 25,000 c.  P 49,000 d.  P 60,000
Solution:
Since direct labor cost represents 60% of prime cost, we need to determine prime cost by dividing direct labor
cost of P 36,000 by its percentage.
Prime cost (100%) = Direct materials (40%) + Direct labor (60%)
Prime cost = 36,000/ 60%
Prime cost = 60,000

We need to compute upward to arrive at the answer:

Prime cost (direct materials + direct labor) 60,000
Factoryoverhead 25,000 (ANSWER)
Manufacturing cost 85,000

22.  The Lion Company’s cost of goods manufactured was P 120,000 when its sales were P 360,000 and its gross
profit was P 220,000. If the ending inventory of finished goods was P 30,000, the beginning inventory of
finished goods must have been:
a.  P 10,000 b.  P 50,000 c.  P 130,000 d.  P 150,000

Solution:
First, compute for the cost of goods sold using information on sales and gross profit.

Sales 360,000
Less: Cost of goods sold 140,000
Equals: Gross profit 220,000

After arriving at the cogs, compute for the missing figure.

Cost of goods manufactured 120,000
 Add: Finished goods, beginning 50,000 (Answer)
Equals: Total Goods available for sale 170,000
Less: Finished goods, end 30,000
Equals Cost of goods sold 140,000

23.  During 2008, there was no change in either the raw material or the work in process beginning and ending
inventories. However, finished goods, which had a beginning, balance of P 25,000, increased by P 15,000. If the
manufacturing costs incurred totalled P 600,000 during 2008, Total Goods Available for Sale must have been
a.  P 585,000 b.  P 600,000 c.  P 610,000 d.  P 625,000

Solution:
Be careful with the requirements. What is asked in this number is the total goods available for sale.
Since there were no work in process figures, manufacturing cost is also the cost of goods manufactured. Just add
the finished goods inventory beginning and you will arrive at 625,000 (600,000+ 25,000)

SUPPLY THE ANSWER

24.  The following is a partial list of costs incurred last month by the Fontana Company:
Product advertising P 20,000 Assembly line workers’ wages  46,000
Fire insurance premium for factory 5,000 Rent, factory building 10,000
Electricity, sales offices 2,000 Freight-out 6,000
Lubricating oil for sewing machines 4,000 Salary, company president 25,000
Foam cushions used in production 32,000 Property taxes, corporate headquarters 3,000
What amount of these costs would be considered manufacturing/factory overhead? P 19,000

25.  The following costs relate to Kirstel Company for the last quarter of the year.
Conversion cost P 435,000
Direct materials 215,000
Manufacturing overhead 190,000
Selling and administrative expense 185,000
What is Kirstel’s prime cost for the quarter? P 460,000 
Conversion cost = direct labor + factory overhead
435,000 = direct labor + 190,000
435,000 – 190,000 = 245,000 (direct labor)

Prime cost = 215,000 + 245,000

Prime cost = 460,000

 Answer the following questions using the information below:

Finished Goods Inventory, beginning P 90,000
Finished Goods Inventory, end 77,000
Cost of goods sold 270,000
Sales revenue 500,000
Operating expenses 155,000
26.  How much is the cost of goods manufactured? P 257,000 
Solution: (UPWARD)
Cost of goods manufactured 257,000 (Answer)
 Add: Finished goods, beginning 90,000
Equals: Total Goods available for sale 347,000
Less: Finished goods, end 77,000
Equals Cost of goods sold 270,000

27.  How much is the gross profit for the period? P 230,000 
Solution:
Sales 500,000
Less: Cost of goods sold 270,000
Gross profit 230,000
PREPARATION OF JOURNAL ENTRIES
Prepare the necessary journal entries for each transaction under the non-cost accounting system. (1 pt. per entry)
28.  Materials are purchased on account at a cost of P 120,000.
Material Purchases 120,000
Vouchers payable 120,000
29.  Purchase returns and allowances, P 2,000
Vouchers Payable 2,000
Materials 2,000
30.  Disbursements are made for the following:
Factory supplies P 2,000
Insurance premiums – factory building and contents 10,000

Factory supplies expense 2,000

Insurance premium – factory building and contents 10,000
Vouchers payable 12,000

31.  Sales on account amounting to P 350,000.

Accounts receivable 350,000

Sales 350,000

32.  Sales returns and allowances, P 5,000.

Sales returns and allowances 5,000

Accounts receivable 5,000

 
33.  Depreciation is provided on:
Factory building P 10,000 Office Building 7,000 Store furniture 3,500

  Depreciation expense – factory building 10,000

Depreciation expense – office building 7,000
Depreciation expense – store furniture 3,500
Accumulated depreciation – factory building 10,000
Accumulated depreciation – office building 7,000
Accumulated depreciation – store building 3,500

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