Cost Cost

CHAPTER 3 COST ACCOUNTING CYCLE
Multiple Choice – Theories
1. Cost of goods sold is

a. An expense
b. A period cost
c. Is an asset
d. None of the above
Answer: A
2. For a manufacturing company, the cost of goods sold available for sale during a given accounting period is
a. The beginning inventory of finished goods
b. The cost of goods manufactured during the period
c. The sum of the above
d. None of the above
Answer: C
3. Which of the following would not be classified as manufacturing overhead?

a. Indirect labor
b. Direct materials
c. Insurance on factory building
d. Indirect material
Answer: B
4. The wage of a timekeeper in the factory would be classified as

a. prime cost
b. direct labor
c. indirect labor
d. administrative expense
Answer: C
5. As current technology changes manufacturing processes, it is likely that direct

a. labor will increase
b. labor will decrease
c. materials will increase
d. material will decrease
Answer: B
6. Sales commissions are classified as

a. prime costs
b. period costs
c. product costs
d. indirect labor
Answer: B
7. For inventoriable costs to become expenses under the matching principle,

a. the must be finished and in stock
b. the product must be expensed based on its percentage of completion
c. the product to which they attach must be sold
d. all accounts must be settled
Answer: C
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: C
9. Costs of goods manufactured in a 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 a merchandising company
Answer: D
10. If the amount of “Cost of goods manufactured” during a period exceeds the amount of the “Total
manufacturing costs” for the period, then
a. Ending work in process inventory is greater than or equal to the amount of the beginning work in
process inventory
b. Ending work in process is greater than the amount of the beginning work in process inventory
c. Ending work in process is equal to the cost of goods manufactured
d. Ending work in process is less than the amount of the beginning work in process inventory
Answer: D
Multiple Choice - Problems
1. For the year 2011, the gross margin of Jumbo Co. was P96,000; the cost of goods manufactured was P340,000; the
beginning inventories of work in process and finished goods were P28,000 and P45,000, respectively; and the
ending inventories of work in process and finished goods were P38,000 and P52,000, respectively. The sales of
Jumbo Co. for 2011, must have been
a. 419,000
b. 429,000
c. 434,000
d. 436,000
Answer: B
Solution:
Cost of Goods Manufactured P 340,000
Finished Goods, Beginning 45,000
Total Goods available for Sale 385,000
Finished Goods, ending (52,000)
Cost of Goods Sold 333,000
Sales (SQUEEZE) P 429,000

COGS 333,000
Gross Profit 96,000
2. The following information was taken from Jeric Comapany’s accounting records for the year ended December 31,
2011.
Increase in raw materials inventory P 15,000
Decrease in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000
There was no work-in-process inventory at the beginning or end of the year. Jeric’s 2011 cost of goods sold is
a. P 950,000
b. P 965,000
c. P 975,000
d. P 995,000
Answer: A
Solution:
Direct Materials
Purchases 430,000
Less: Increase in raw materials 15,000 415,000
Direct Labor 200,000
Factory Overhead 300,000
Manufacturing Cost 915,000
Add: Decrease in Finished Goods 35,000
Items 3 through 5 are based on the following information pertaining to Glenn Company’s manufacturing
operations.
Inventories 3/1/11 3/31/11

Direct Materials P 36,000 P 30,000
Work-in-process 18,000 12,000
Finished goods 54,000 72,000
Additional Information for the month of March 2011
Direct materials purchased P 84,000
Direct labor payroll 60,000
Direct labor rate per hour 7.50
Factory overhead rate/direct labor hour 10.00
3. For the month of March 2011, prime cost was
a. P 90,000
b. P 120,000
c. P 144,000
d. P 150,000
Answer: D
Solution:
Direct Materials
Direct Mats. – Beg. 36,000
Add: Purchases 84,000
Less: Direct Mats. – End. (30,000) 90,000
Direct Labor 60,000
Prime Cost 150,000
4. For the month of March 2011, conversion cost was
a. P 90,000
b. P 140,000
c. P 144,000
d. P 170,000
Answer: B
Solution:
Direct Labor 60,000

Factory Overhead (60,000/7.50)=8000*10 80,000
Conversion Cost 140,000
5. For the month of March 2011, cost of goods manufactured was
a. P 218,000
b. P 224,000
c. P 230,000
d. P 236,000
Answer: D
Solution:
Direct Materials used
Direct Materials, 3/1/11 36,000
Total available for use 120,000
Less: Direct Materials, 3/31/11 30,000 90,000
Direct Labor 60,000
Total Manufacturing Costs 230,000
Add: Work in process, 3/1/11 18,000
Cost of Goods put into process 248,000
Less: Work in process, 3/31/11 12,000
Cost of Goods manufactured 236,000
Items 6 and 7 are based on the following data of Matatag Company for the month of March 2011.
March 1 March 31
Materials 40,000 50,000
Work in Process 25,000 35,000
Finished Goods 60,000 70,000
March 1 to 31, 2011
Direct Labor Cost 120,000
FOH-Applied 108,000
6. The total amount of direct materials purchased during March was:
a. 50,000
b. 170,000
c. 180,000
d. 220,000
Answer: C
7. The cost of goods manufactured during March, 2011 was:
a. 378,000
b. 388,000
c. 398,000
d. 428,000
Answer: B
Solution:
Direct materials used

Materials, Beg. 40,000
Purchases (SQUEEZE) No. 6 180,000
Less: Materials, End. (50,000) 170,000
Manufacturing Costs 398,000
Add: Work in process, Beg. 25,000
Cost of goods put into process 423,000
Less: Work in process, End (35,000)
Cost of goods manufactured (SQUEEZE) No. 388,000
7
Add: Finished goods, Beg. 60,000
Goods Available for Sale 448,000
Less: Finished goods, End. (70,000)
Some selected sales and cost data for Alcid Manufacturing Company are given below:
Direct materials used P 100,000

Direct labor 150,000
Factory overhead (40% variable) 75,000
Selling and administrative expenses
(50% direct, 60% variable) 120,000
8. Prime cost was:
a. P 175,000
b. P 250,000
c. P 130,000
d. P 225,000
Answer: B
Solution:
Direct materials P 100,000

Direct labor P 150,000
Prime cost P 250,000
9. Conversion cost was:
a. P 150,000
b. P 225,000
c. P 250,000
d. P 270,000
Answer: B
Solution:

Factory overhead P 75,000
Conversion cost P 225,000
10. Direct cost was:
a. P 225,000
b. P 250,000
c. P 310,000
d. P 325,000
Answer: C
Solution:
Direct Selling and administrative Expense

(P 120,000 x 50%) P 60,000
Direct materials 100,000
Direct cost P 310,000
11. Indirect cost was:
a. P 75,000
b. P 135,000
c. P 195,000
d. P 325,000
Answer: B
Solution:
Indirect Selling and Administrative Expense
(P 120,000 x 50%) P 60,000
Indirect cost P 135,000
12. Product cost was:
a. P 135,000
b. P 250,000
c. P 325,000
d. P 370,000
Answer: C
Solution:

Product cost P 325,000
13. Variable cost was:
a. P 250,000
b. P 280,000
c. P 352,000
d. P 370,000
Answer: C
Solution:
Variable Selling and Administrative Expense

(P 120,000 x 60%) P 72,000
Variable factory overhead (P 75,000 x 40%) 30,000
Variable cost P 352,000
During 2011, 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.
14. If the manufacturing costs incurred totaled P 600,000 during 2011, the goods available for sale must have been:
a. P 585,000
b. P 600,000
c. P 610,000
d. P 625,000
Answer: D
Solution:
Manufacturing costs P 600,000

Add: Finished goods, beginning 25,000
Goods available for sale P 625,000
During the month of May, 2011, Candid Manufacturing Co. incurred P 30,000, P 40,000, and P 20,000 of direct
material, direct labor and factory overhead costs respectively.
15. If the cost of goods manufactured was P 95,000 in total and the ending work in process inventory 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
Answer: B
Solution:
30,000
Direct Materials
Direct Labor 40,000
Manufacturing Costs 90,000
Add: Work in process, Beg. (SQUEEZE) 20,000 The Lion Company’s cost of goods manufactured was P
Cost of goods put into process 110,000 120,000 when it sales were P 360,000 and its gross
Less: Work in process, End. 15,000
margin was P 220,000.
Cost of Goods Manufactured 95,000
16. 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
Answer: B
Solution:
Sales 360,000
Cost of Goods Sold
Cost of goods manufactured 120,000
Add: Finished goods, beg. 50,000
(SQUEEZE)
Goods available for sale 170,00
Less: Finished goods, end. 30,000 140,000
Gross Margin 220,000
The gross margin for Cruise Company for 2011 was P 325,000 when sales were P 700,000. The FG inventory was P
60,000 and the FG inventory, end was P 35,000.
17. The cost of goods manufactured was:
a. P 300,000
b. P 350,000
c. P 230,000
d. P 375,000
Answer: B
Solution:
Sales P 700,000
Less: Gross Margin (325,000)
Cost of Goods Sold P 375,000
Add: Finished Goods, end 35,000
Less: Finished Goods, beginning (65,000)
Cost of Goods Manufactured P 350,000
During the month of January, F Co.’s direct labor cost totaled P 36,000, and the direct labor cost was 60% of prime
cost.
18. If total mfg. costs during January were P 85,000, the factory overhead was:
a. P 24,000
b. P 25,000
c. P 49,000
d. P 60,000
Answer: B
Solution:
Manufacturing Costs P 85,000

Less: Prime Cost (P 36,000 / 60%) (60,000)
Factory overhead P 25,000
During 2011, there was no change in the beginning or ending balance in the Materials inventory account for the DL Co.
However, the WP inventory account increased by P 15,000, and the FG inventory account decreased by P 10,000.
19. If purchases of raw materials were P 100,000 for the year, direct labor costs was P 150,000, and manufacturing
overhead cost was P 200,000, the cost of goods sold for the year would be:
a. P 435,000
b. P 445,000
c. P 465,000
d. P 475,000
Answer: B
Solution:
Total Manufacturing Costs 450,000
Work in process (increase) (15,000)
Cost of goods Manufactured 435,000
Finished Goods (decrease) 10,000
Cost of Goods Sold P 445,000
During the month of March, 2011, Nape Co. used P 300,000 of direct materials. At March 31, 2011, Nape’s direct
materials inventory was P 50,000 more than it was at March 1, 2011.
20. Direct material purchases during the month of March 2011 amounted to:
a. P 0
b. P 250,000
c. P 300,000
d. P 350,000
Answer: D
Solution:
Direct materials, beginning P 300,000

Add: Direct materials, End 50,000
Direct Material Purchases P 350,000
21. Calculate the manufacturing overhead incurred for F&B Co.
Direct labor cost incurred P 250

Direct materials used 110
Beginning work in process 50
Ending work in process 300
Finished goods completed 170
a. P 60
b. P 410
c. P 560
d. P 580
Answer: A
Solution:
Direct labor cost incurred 250

Direct Materials Used 110
Factory Overhead 60 SQUEEZE
Total manufacturing cost 420
Add: Work in process, beg. 50
Cost of Goods put into process 470
Less: Work In Process, end 300
*Finished goods Completed 170
* Finished goods completed is equal to cost of goods manufactured.

22. Determine the sales for the year.
Gross profit P 280,000

Ending inventory 120,000
Goods available for sale 180,000
a. P 300,000
b. P 340,000
c. P 400,000
d. P 460,000
Answer: B
Solution:
Goods Available for Sale P 180,000

Less: Inventory,end 120,000
Add: Gross Profit 280,000
Sales 340,000
*Gross profit is attained by getting the difference between Sales and Cost of Goods Sold. Using the SQUEEZE
method we are able to get the number of sales by adding COGS and Gross Profit.
Given the following information:
Finished goods beginning P 26,000

Finished goods ending 37,000
23. What is the cost of goods sold?
a. P 115,500
b. P 138,500
c. P 153,000
d. P 190,500
e. P 116,000
Answer: E
Solution:

Add: Finished Goods, beg. 26,000
Total Goods Available for Sale 153,000
Less: Finished Goods, end 37,000
* The above solution is based on the Cost Goods Sold Statement formula.
Uniflo Manufacturing Company developed the following data for the current year.
Work in process inventory, January 1 P 40,000

Direct materials used 24,000
Actual factory overhead 48,000
Applied factory overhead 36,000
Total manufacturing costs 120,000
24. Uniflo Company’s direct labor cost for the year is
a. P 12,000
b. P 60,000
c. P 36,000
d. P 48,000
Answer: B
Solution:
Direct Materials used 24,000

Factory Overhead Applied 36,000
Direct Labor (60,000) SQUEEZE
Total Manufacturing Cost 120,000
*Factory overhead applied is used in determining the total manufacturing cost and not the actual overhead.
25. Uniflo Company’s work in process inventory, December 31 is
a. P 116,000
b. P 80,000
c. P 76,000
d. P 36,000
Answer: A
Solution:

Work in process, beg 40,000
Less: Work in process, end 116,000 SQUEEZE
The following data relate to Maxine Manufacturing Company for the period:

Work in process inventory, beginning 11,000
Work in process inventory, end 5,000
Sales 50,000
Finished goods inventory, beginning 9,000
Finished goods inventory, end 8,000
Total selling, general, and administrative costs 14,000
26. The amount of direct materials put into production during the period
a. P 6,700
b. P 5,600
c. P 4,800
d. P 5,900
Answer: D
Solution:
Direct materials 5,900 SQUEEZE

Direct Labor 2,400
Work in process, beg 11,000
Less: Work in process, end 5,000
Add: Finished goods, beg 9,000
Total goods available for sale 25.000
Less: Finished goods, end 8,000
Cost of goods sold 17,000
27. The amount of increase in retained earnings during the period

a. P 14,000
b. P 33,000
c. P 25,000
d. P 19,000
Answer: D
Solution:
Sales 50,000
Cost of Goods Sold (17,000)
Gross Profit 33,000
Total selling, general, and administrative costs (14,000)
Net Income 19,000
* Net Income is the increase in the retained earnings.
Arizona Manufacturing Company reported the following year-end information
Work in process inventory, January 1 180,000

Raw materials inventory, January 1 50,000
Work in process inventory, December 31 150,000
Raw materials inventory, December 31 80,000
Raw materials purchased 160,000
Factory overhead applied 100,000
Factory overhead control 120,000
28. Cost of goods manufactured for the year is
a. P 380,000
b. P 410,000
c. P 350,000
d. P 440,000
Answer: B
Solution:
Materials Used:
Raw Materials, beg 50,000
Total Available for use 210,000
Less: Materials, end 80,000 130,000
Factory Overhead Applied 100,000
Add: Work in process, beg. 180,000
Less: Work in process, end. 150,000
* Used Cost of Goods Sold Statement to determine the value.
Alabama Corporation reported the following for the year. WP inventory, beg – P 90,000; cost of goods manufactured – P
258,000; FG inventory, beg – P 126,000; WP inventory, end – P 110,000; FG inventory, end – P 132,000
29. Cost of goods sold for Alabama Corporation during the year
a. P 252,000
b. P 264,000
c. P 232,000
d. P 126,000
Answer: A
Solution:

Add: Finished goods, beg. 126,000
Total goods available for sale 384,000
Less: Finished goods, end 132,000
Cost of goods sold 252,000
30. Total manufacturing costs for Alabama Corporation
a. P 278,000
b. P 368,000
c. P 298,000
d. P 238,000
Answer: A
Solution:

Work in process, end 110,000
Less: Work in process, beg. 90,000
Total manufacturing cost 278,000
CHAPTER 6 ACCOUNTING FOR MATERIALS
True – False Questions
1. When price are rising, higher income will be reported using FIFO as compared with using LIFO.
Answer: TRUE
2. Inventory Methods can be changed at will to control reported net income. (cost of goods sold)
Answer: FALSE
3. An overstated ending inventory leads to understated net income. (understated); (overstated)
Answer: FALSE
*When an ending inventory overstatement occurs, the cost of goods sold is stated too low, which means that
net income before taxes is overstated by the amount of the inventory overstatement; vice versa.
4. An error in determining the cost of the ending inventory of a period generally results in misstated net income for two
periods.
Answer: TRUE
5. The net realizable value of an inventory item can never be greater than its expected selling price
Answer: TRUE
6. An advantage of using lifo yields the greatest Cost of Goods Sold.
Answer: TRUE
7. Spoiled goods may be sold at an amount higher than the regular sales price. (lower)
Answer: FALSE
*Spoiled goods are goods that do not meet production standards and are either sold for their salvage value or
discarded. When spoiled units are discovered, they are taken out of production and no further work is performed on
them.
8. If spoilage in a job results is due to the exacting specifications of the job, the loss resulting from the spoiled goods
should be shared by all units manufactured during the period. (the specific job)
Answer: FALSE
*If the reason for the spoilage is the job itself, because it requires exacting specifications, or a difficult,
intricate or complicated manufacturing process.
9. The closing entries necessary under the perpetual and periodic inventory systems do not differ because all
expenses and revenues must be close. (differ)
Answer: FALSE
*Perpetual inventory systems record cost of goods sold and keep inventory at its current balance throughout
the year. Therefore, there is no need to do a year-end inventory adjustment unless the perpetual records disagree with
the inventory count. In addition, a separate cost of goods sold calculation is unnecessary since cost of goods sold is
recorded whenever inventory is sold.
*The inventory account in a periodic inventory system keeps its beginning balance until the end of period
adjustment to the physical inventory count. Therefore, a separate cost of goods sold calculation is necessary.
10. When a company changes from one inventory costing method to another, the change must be fully disclosed in a
footnote to the financial statements explaining the reasons for the change.
Answer: TRUE
11. Graphically, the economic order quality (EOQ) is the point where the carrying cost line intersect the ordering cost
line.
Answer: TRUE
12. The primary goal of inventory management activity is to minimize the risks of a stockout while maximizing the
return on inventory. (inventory related costs)
Answer: FALSE
13. When computing the economic production run size, the costs to set up a production run are analogous to carrying
costs in the basic economic order quantity model. (order costs)
Answer: FALSE
14. The purchase price per unit of inventory is irrelevant in lathe economic order quantity (EOQ) model.
Answer: TRUE
15. The accounting for spoiled units and defective units is the same. (different)
Answer: FALSE
*When spoiled units are discovered, they are taken out of production and no further work is performed on
them. While defective units do not meet production standards and must be processed further in order to be salable as
good units or as irregulars.
Multiple Choice - Problems
1. According to the net method, which of the following items should be included in the cost of inventory?
Freight-cost Purchase discounts not taken

a. Yes No
b. Yes Yes
c. No Yes
d. No No
Answer: A
Explanation:
The cost of inventory should include all expenditures (direct and indirect) incurred to bring an
item to its existing condition and location. Freight charges are thus appropriately included in inventory costs.
Under the net purchase method, purchase discounts not taken are recorded in a Purchase Discount Lost
Account. When this method is used, purchase discounts lost are considered a financial expense and are thus
excluded from the cost of inventory.
2. The weighted average for the year inventory cost flow method is applicable to which of the following inventory
system?
Periodic Perpetual
a. Yes Yes
b. Yes No
c. No Yes
d. No No
Answer: B
Explanation:
Weighted average for the year inventory cost flow method is applicable only to periodic
inventory system because in perpetual inventory system, moving average method is the one being used.
3. During June, Delta Co. experienced scrap, normal spoilage, and abnormal spoilage in its manufacturing process.
The cost of units produced includes
a. Scrap, but not spoilage

b. Normal spoilage, but neither scrap nor abnormal spoilage
c. Scrap and normal spoilage, but not abnormal spoilage
d. None of the items mentioned
Answer: C
Explanation:
The cost of units produced includes scrap and normal spoilage but does not include abnormal spoilage.
Abnormal spoilage is recognized as a loss when it is discovered, therefore it is not included in the cost of units
produced.
4. Marsh Company had 150 units of product on hand at January 1, costing P21.00 each. Purchases of product A during
the month of January were as follows:
Units Unit Cost

January 10 200 22.00
18 250 23.00
28 100 24.00
Physical count on January 31 shows 250 units of product A on hand. The cost of inventory at January 31, under the
FIFO method is:
a. P 5, 850
b. P 5, 550
c. P 5, 350
d. P 5, 250
Answer: A
Solution:
150 units x 23 (Unit Cost) = 3,450
100 units x 24 (Unit Cost) = 2,400
250 units 5,850
Explanation:
Under the Fifo method, remaining units are those purchased at the later date. Thus the units on hand
on January 31 are those remaining from January 18 and 28.
5. Harper Company’s Job 301 for the manufacture of 2,200 coats was completed during August 2009 at the following
unit costs:
Direct Materials P 20.00

Direct Labor 18.00
Factory Overhead (includes an allowance of P1.00 spoiled work) 18.00
56.00
Final inspection of Job 301 discloses 200 spoiled costs which were sold to a jobber for P 6000. Assume that
spoilage loss is charged to all production during August. What would be the unit cost of the good units produced on
Job 301?
a. P 53.00
b. P 55.00
c. P 56.00
d. P 58.00
Answer: C
Explanation:
Under the method, loss charged to all production, the unit cost of the completed units remains
unchanged.
Solution/Entries:
Work in Process (56 x 2200) 123,200

Materials 44,000
Payroll 39,600
Spoiled Goods 6,000

Work in Process 11,200
Work in Process, Ending = 123,200-11,200 = 112,000

Unit Cost = 112,000/2,000 = P 56.00
6. Assume instead, that the spoilage loss is attributable to exacting specification of Job 301 and is charged to this
specific job. What would be the unit cost of the good coats produced on Job 301?
a. P 55.00
b. P 57.50
c. P 58.60
d. P 61.60
Answer: B
Solution/Entries:
Work in Process (55 x 2,200) 121,000

Materials 44,000
Payroll 39,600
Spoiled Goods 6,000

Work in Process= 121,000-6,000= 115,000

Unit Cost = 115,000/2,000 = P 57.50
Palmer Corporation is a manufacturing concern that uses a perpetual inventory system. The following data on the
material inventory account is provided for 2009.
Material balance P 275,000

Other debits to the materials account during the year 825,000
Increase of ending over beginning inventory 55,000
7. How much is the cost of materials issued to production?
a. P 1,045,000
b. P 770.000
c. P 880,000
d. P 430,000
Answer: B
Solution:
Beginning Inventory P 275,000

Total materials available for production P 1,100,000
Less: Ending Inventory 330,000*
Cost of Materials issued to production P 770,000
* Ending Inventory
Material Balance P 275,000
Add: Increase of ending over beginning inventory 55,000
Ending Inventory P 330,000
Job 75 incurred the following costs for the manufacture of 200 units of motors:
Original cost accumulation

Direct labor 16,000
Factory overhead (150% of direct labor) 24,000
Direct costs of reworked 10 units

Direct labor 3,200
The total rework costs were attributable to exacting specifications of Job 75 and the full rework costs were charged to
the specific job.
8. The cost of Job 75 was
a. P 316
b. P 266
c. P 280
d. P 292
Answer: A
Explanation:
If the reason for the defect is the job itself, the additional costs incurred of the reworked 10 units will
be charged to all units in the job
Solution:

Materials 13,200
Payroll 16,000

Materials 2,000
Payroll 3,200
Finished Goods 63,200

Unit Cost = 63,200/200 = P 316
The following data on materials purchases and issues during the month of April were reported:
April 1 Beginning balance 400 units at P6
5 Received 100 units at P7
13 Issued 400 units
22 Issued 250 units
27 Returned from factory 50 units
9. Assuming that the company used a perpetual inventory system, the total quantity and cost of materials purchased
for the month of April should be:
a. 700 units at P 5,800

b. 700 units at P 5,810
c. 700 units at P 5,400
d. 700 units at P 6,200
Answer: C
Solution:
No. of units Cost per unit Total Cost
April 5 Received 100 units x P7 700
11 Received 100 units x 8 800
15 Received 200 units x 6 1,200
30 Received 300 units x 9 2,700
Cost of materials purchases 700 units 5,400
The Curacha Company uses 20,000 units of Material A in making a finished product. The cost to place one order for
Material A is P8.00 and the annual cost to carry one Material A is P2.00
10. The economic order quantity for Material A is
a. 100 units
b. 400 units
c. 283 units
d. 565 units
Answer: B
Solution:
EOQ = 2(cost of placing an order)(number of units required annually)

carrying cost per unit of inventory
= 2(8)(20,000)/2
= 160,000
= 400 units
11. If the cost to place one order increased by P10 and the cost to carry one Material A in stock remains the same, the
economic order quantity will be
a. 600 units
b. 447 units
c. 425 units
d. 500 units
Answer: A
Solution:
EOQ = 2(18)(20,000)/2
= 600 units
One of the products that Justine Corporation sells is "Extra Soft" floor mats. Justine's ordering costs related to the mat
is P12.50 per order. The cost of carrying one mat in inventory for one year is P16.00. Justine sells 40,000 of these mats
evenly throughout the year.
12. What is the economic order quantity of Justine Corporation?
a. 250 units
b. 350 units
c. 400 units
d. 500 units
Answer: A
Solution:
EOQ = 2(12.50) (40,000)/16.00

= 250 units
13. What are Justine's total ordering costs per year and total carrying costs per year at the economic order quantity?
Ordering Cost Carrying Cost.
a. P 1,562.50 P 1,562.50
b. 1,562.50 2,560.50
c. 2,000.00 2,000.00
d. 2,000.00 4,000.00
Answer: C
Solution:
Ordering Cost= Number of units required annually x ordering cost per unit OC
EOQ
= (40,000/250)*12.50
= 2,000
Carrying Cost = EOQ x carrying cost per unit CC

2
= (250/2)*16
= 2,000
One of the products that Ram Breakfast Foods manufactures is carrot juice. Ram manufactures and sells 5000 cases of
carrot juice evenly each year. Variable manufacturing costs are P4.50 per case. It costs Ram P3.60 to setup a
production run for carrot juice. It also costs Ram P2.50 per case year to carry a case of carrot juice in inventory.
14. What is Ram’s economic production run size?
a. 83 cases
b. 85 cases
c. 120 cases
d. 150 cases
Answer: C
Solution:
Economic Production Run Size = 2 (Annual Demand) (Setup Cost) / Carrying Cost
= 2(5000) (3.60) / 2.5
= 120
Euphorbia Company produces and sells a single item of product. Inventory at the beginning of September was 400
units at P1.80 per unit. Further receipts and sales during the month were as follows:
Units Cost per unit
September 8 Receipts 600 P2.10
20 Receipts 500 -?
25 Sales 1250 4.00
The inventory uses the FIFO method of stock valuation. Gross margin for September was P2,500.
15. What was the cost per unit of the P500 received on September 20?
a. P 1.04
b. P 1.94
c. P 2.00
d. P 2.08
Answer: D
Solution:
Beginning 400 @ 1.80 = 720

Sept. 8 600 @ 2.10 = 1,260
Sept. 20 250 @ 2.08 = 520 (520/250 = 2.08)
Sales 1250 @ 4.00 = 2,500
The following information pertains to Material X used by Nikki Company
Annual usage in units 20,000

Working days per year 250
Safety stock in units 800
Normal lead time in working units 30
16. If units of Material X will be required evenly throughout the year, the reorder point is
a. 800
b. 1,600
c. 2,400
d. 3,200
Answer: D
Solution:
Reorder Point =
= 3200 units
The following information relates to PRTC Company
Units required per year 60,000

Cost of placing an order P 900
Carrying cost per unit per year P 1,200
17. Assuming that the units will be required evenly throughout the year, what is the EOQ?
a. 200
b. 300
c. 400
d. 450
Answer: B
Solution:
EOQ =
= 300 units
During March, Mark Company incurred the following costs on Job 209 for the 200 motors
Original cost accumulation P 660

Direct materials 800
Direct labor 1,200
Factory overhead P2,660
Direct costs of reworking 10 units:

Direct materials P 100
Direct labor 160
P 260
Method A – The rework cost were attributable to the exacting specifications of Job 209, and the full rework costs were
charged to this specific job.
Method B – The defective units fall within the normal range and the rework is not related to a specific job, or the
rework is common to all the jobs.
18. The cost per finished unit of Job 209 using Method A is:
a. P 15.60
b. P 15.80
c. P 13.30
d. P 13.50
Answer: B
Solution:
FOH rate =
Factory Overhead = 160 x 1.5 = 240
Original cost accumulation

Direct Materials P 660
Direct Labor 800
Factory overhead 1,200 P 2,660
Add: Direct costs or reworking 10 units:
Direct Materials 100
Direct Labor 160
Factory overhead 240 500
Total P 3,160
Divide by 200 motors
Cost per finished unit of Job 209 using Method A P 15.80
19. The cost per finished unit of Job 209 using Method B is:
a. P 13.30
b. P 15.80
c. P 15.30
d. P 13.60
Answer: A
Solution:
Original Cost P 2,660
Divide by 200 motors
Cost per finished unit of Job 209 using Method B P 13.30
Tools Company manufactures electric drills to the exacting specifications of various customers. During February 2008,
Job 403 for the production of 1,100 drills was completed at the following cost per unit:
Direct materials P 100

Direct labor 80
Factory overhead 120
Total 300
Final inspection of Job 403 disclosed 50 defective units and 100 units of normal spoilage. The defective drills were
reworked at a total cost of P5,000 and the spoiled drills were sold to a jobber for P15,000.
20. The unit cost of the good units produced on Job 403 was:
a. P 330
b. P 320
c. P 300
d. P 290
Answer: B
Solution/Entry:

Materials 110,000
Payroll 88,000
Spoiled Goods 15,000


Materials, Payroll, FOH 15,000
Work in Process = 330,000 + 5,000 – 15,000
Unit Cost = 320,000/1,000 = P 320
The following information relates to Blueberry Company’s materials Y
Working days per year 240

Normal lead time in working days 20
Maximum lead time in working days 45
21. Assuming that the units of material Y will be required evenly throughout the year, the safety stock and order point
would be
Safety Stock Order Point
a. 600 600
b. 600 1,350
c. 750 600
d. 750 1,350
No answer, due to lack of information.

UFC Inc. manufactures 100,000 special bulbs for its transformer division. The bulbs will be used evenly throughout the
year. The setup cost every time a production run is made is P800 and the cost to carry bulbs in inventory for the year
is P4. UFC’s objective is to produce the bulbs at the lowest cost possible.
22. Assuming that each production run will be for the same number of bulbs, how many production runs should UFC
make?
a. 10
b. 14
c. 16
d. 19
Answer: C
Solution:
EOQ =
EOQ =
EOQ = 6,326 units
No. of production runs=
=
= 16
The following information is about a company’s inventory costs
Total cost to place one order P 50

Total cost to carry one unit P4
Economic order quantity 7,000 units
23. What is the company’s estimated annual usage?
a. 1,000,000 units
b. 1,960,000 units
c. 1,400,000 units
d. 2,000,000 units
Answer: B
Solution:
EOQ =
R = 1,960,000 units
24. How many orders will be placed?
a. 143
b. 200
c. 280
d. 286
Answer: C
Solution:
No. of orders =
= 280
Norman buys baseball bats from a manufacturer at P10 each. Norman expects to sell 90,000 bats evenly over the next
year. Norman’s cost of capital is 10 percent. The total out-of-pocket cost to carry one bat in inventory is P0.50 and the
cost of ordering bats is P15 per order.
25. Suppose that Norman orders 3,000 bats at a time. What is the total annual inventory cost?
a. P 750
b. P1,200
c. P2,250
d. P2,700
Answer: D
Solution:
Total annual inventory cost = 3,000 x 90%

= P 2,700
26. What is the economic quantity order?
a. 1,342 units
b. 1,643 units
c. 2,324 units
d. 3,000 units
Answer: C
Solution:
EOQ =
=
= 2,324 units
27. How many times would Norman have to place an order in one year?
a. 67 times
b. 55 times
c. 39 times
d. 30 times
Answer: C
Solution:
Times of order =
= 39 times
28. Norman sells bats for 300 days in a year. The lead time on orders is 2 days. At what point should Norman place the
order?
a. 900 units remaining in stock

b. 600 units remaining in stock
c. 300 units remaining in stock
d. 0 units remaining in stock
Answer: B
Solution:
Order Point =
= 600 units
The Sundust Company manufactures 4,000 brooms evenly throughout the year. The setup cost is P2.00 and using the
EOQ approach. The optimum production run would be 200.
29. The cost of carrying one broom in inventory for one year is
a. 0.05
b. 0.10
c. 0.20
d. 0.40
Answer: D
Solution:
EOQ =
40,000 =
40,000 =
40,000X = 16,000
X = 0.40
During August of the current year, Job 067 for 2,000 handsaws was completed at the following cost per unit:
Direct Materials P 5.00

Direct Labor 4.00
Factory Overhead (applied @ 150% of DLC) 6.00
Final inspection revealed 100 defective units which were reworked at a cost of P2.00 per unit for direct labor plus
overhead at the predetermined rate.
30. If the defect is due to internal failure. What is the total rework cost and to what account should it be charged.
Rework Cost Account charged
a. P 200 Work In Process

b. P 200 Factory Overhead Control
c. P 500 Work In Process
d. P 500 Factory Overhead Control
Answer: D
Solution/Entry:
Factory Overhead Control 500

Payroll (2*100) 200
Factory overhead applied (200*150%) 300

Cost Cost

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CHAPTER 3 COST ACCOUNTING CYCLE

Multiple Choice – Theories

1. Cost of goods sold is

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

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

5. As current technology changes manufacturing processes, it is likely that direct

6. Sales commissions are classified as

7. For inventoriable costs to become expenses under the matching principle,

8. A manufacturing company reports cost of goods manufactured as

9. Costs of goods manufactured in a manufacturing company is analogous to

Sales (SQUEEZE) P 429,000

Inventories 3/1/11 3/31/11

3. For the month of March 2011, prime cost was

4. For the month of March 2011, conversion cost was

Direct Labor 60,000

5. For the month of March 2011, cost of goods manufactured was

6. The total amount of direct materials purchased during March was:

7. The cost of goods manufactured during March, 2011 was:

Direct materials used

Direct materials used P 100,000

8. Prime cost was:

Direct materials P 100,000

9. Conversion cost was:

Direct labor P 150,000

10. Direct cost was:

Direct Selling and administrative Expense

11. Indirect cost was:

12. Product cost was:

Direct materials P 100,000

13. Variable cost was:

Variable Selling and Administrative Expense

Manufacturing costs P 600,000

17. The cost of goods manufactured was:

Manufacturing Costs P 85,000

Direct materials, beginning P 300,000

21. Calculate the manufacturing overhead incurred for F&B Co.

Direct labor cost incurred P 250

Direct labor cost incurred 250

* Finished goods completed is equal to cost of goods manufactured.

Gross profit P 280,000

Goods Available for Sale P 180,000

Given the following information:

Finished goods beginning P 26,000

23. What is the cost of goods sold?

Cost of Goods Manufactured 127,000

Work in process inventory, January 1 P 40,000

24. Uniflo Company’s direct labor cost for the year is

Direct Materials used 24,000

25. Uniflo Company’s work in process inventory, December 31 is

Total Manufacturing Cost 120,000

Direct labor P 2,400

Direct materials 5,900 SQUEEZE

27. The amount of increase in retained earnings during the period

* Net Income is the increase in the retained earnings.

Arizona Manufacturing Company reported the following year-end information

Work in process inventory, January 1 180,000

28. Cost of goods manufactured for the year is

* Used Cost of Goods Sold Statement to determine the value.

Cost of goods manufactured 258,000

30. Total manufacturing costs for Alabama Corporation

Cost of goods manufactured 258,000

CHAPTER 6 ACCOUNTING FOR MATERIALS

True – False Questions