Chap

Job Order C
Job
Job order costing is a procedure of accumulating the three elements of cost, mate
and
andoverhead
overheadby
byjob
joborder.
order.Job
Joborder
ordercosting
costingproblems
problemsoften
oftenappear
appearininthe
theCPA
CPAexa
ex
The discussion on th is shall be limited to the basic review of the
the flow
flow of
of cost
cost under
under
costing.

Candidates
Candidatesshould
shouldhave
havesound
soundknowledge
knowledgeon
onthe
thefollowing
followingtypes
typesof
ofproblems
problems involvi
costing:

1. Job order
order cos
costin
ting
g proc
procedu
edures
res..
2. Preparatio
Preparation
n of Statemen
Statementt of Cost of Goods
Goods Manufact
Manufactured
ured and Sold.
3. Accountin
Accounting
g for
for spoiled
spoiled units and rework
rework cos ts.
4. Allo
Allocat
cation
ion of
of service
service depa
departm
rtment
ent costs
costs..

JOB ORDER COSTING PROCEDURES

Job order costing procedures may be summarized as follows:

1. Job order
order costi
costing
ng applie
applied
d to cost as follow
followss
a. Direct
Direct materials
materials and
and direct
direct labor
labor costs
costs are traced
traced to a part
particula
icularr jo
b. Cost not directly
directly tr
tracea
aceable
ble (overhead
(overhead)) are applied
applied to individua
indi viduall
predetermined overhead application rate.
2. The overhead
overhead rate
rate is a predetermi
predetermined
ned yearly
year ly rate using
using as base,
base, l
machine hours, or labor cost.
3. Practical
Prac tically,
ly, the differenc
difference
e between overhea
overhead
d applied
applied and actual
actual overhe
to cost of goods sold at the end of period.

PREPARATION OF STATEMENT OF COST OF GOODS MANUFACTURED

Statement
Statement of
of Cost
Cost of
of Goods
Goods Manufactured
Manufactured refers
refers to
to the
the cost
cost of
of the
the jobs
jobs complete
complete
they
they were
were started
started before
before or
or during
during the
the current
current accounting
accounting period.
period. In
In the
the prepara
prepara
statement
statement candidate
candidate should
should know
know the
the presentation
presentation of
of the
the following
following cost elements:

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 3. Manufacturing overhead. This consists of all product costs other
materials and
and direct labor
labor costs.
costs.
4. Prime cost. This is the sum of direct materials and direct labor costs.
5. Conversion cost. This is the sum of direct labor cost and manufacturing ov
o
6. Manufacturing cost. This is the sum of direct materials, direct
manufacturing overhead costs.
7. Under-applied or over-applied manufacturing overhead. This is the
th
between the actual overhead incurred and the applied (estimated) overh

The usual forma t of the statement

statement presented below:
below:

Direct material used:

Begi nni n g i nven tor y, J anuary 1 xx
P urcha se s xx
C ost o f m ate ri a l ava ilab le f o r us e xx
E nding inve nto r y, De ce mbe r 31 xx
Di re ct la bo r
A ppli ed manuf act uri ng o verhe ad
Man ufactu ri ng c o sts
A dd beg inn i ng wo rk in p rog ress , J an uar y 1
C ost of goo ds pla c ed in pr oces s
Less e ndi ng wo r k in pr oce ss, Decem ber 3 1
Cost of goods manufactured

The Cost of Goods Sold i n a manufacturing

manufacturing company is usually
usually computed as:
as:

B eginn i ng fini sh ed goo ds inven to r y

C ost o f g oo ds manufa ct ured
C ost of g oo ds ava ilable fo r s al e
Less e ndi ng f i nishe d goods i nvent o ry
C ost of g oo ds sold a t no rm al costi ng
Unde r-a ppl ied (o ve r- a ppli ed) o v e rhea d
Cost of goods sold at actual cost costing
ing

ALLOCATION OF SERVICE (SUPPORT) DEPARTMENT COSTS

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 3. Manufacturing overhead. This consists of all product costs other
materials and
and direct labor
labor costs.
costs.
4. Prime cost. This is the sum of direct materials and direct labor costs.
5. Conversion cost. This is the sum of direct labor cost and manufacturing ov
o
6. Manufacturing cost. This is the sum of direct materials, direct
manufacturing overhead costs.
7. Under-applied or over-applied manufacturing overhead. This is the
th
between the actual overhead incurred and the applied (estimated) overh

The usual forma t of the statement

statement presented below:
below:

Direct material used:

Begi nn i ng i nven tor y, J a nuary 1 xx
P ur cha se s xx
Co st o f m ate ri al avai lab le f o r us e xx
E nding inve nto r y , De ce mbe r 31 xx
Di re ct labo r
A p pli ed manuf acturi ng o verhe ad
Man ufactu ri ng c o sts
A d d beg inn i ng wo rk in p rogr ess , J an uar y 1
C ost of g oo ds pla c ed in pr ocess
Less e ndi ng wo r k in pr oc e ss, Decem ber 3 1
Cost of goods manufactured

The Cost of Goods Sold i n a manufacturing

manufacturing company is usually
usually computed as:
as:

B eginn i ng fini sh ed goods inven to r y

C ost o f g oo ds manufa ct ured
C ost of g oo ds ava ilable f o r s al e
Less e ndi ng f i nishe d goods i nvent o ry
C ost of g oo ds sold a t no rm al costi ng
Unde r-a ppl ied (o ve r- a ppli ed) o v e rhea d
Cost of goods sold at actual cost costing
ing

ALLOCATION OF SERVICE (SUPPORT) DEPARTMENT COSTS

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Candidates
Candidates should
should remember
remember the
the following
following methods
methods of
of service cost allocation:

1. Direct method. Under

Under this
this method, the
the cost
cost of each
each service department
directly to producing departments.
2. Step-down method. This method involves allocation of service departm
both service and prod
producing
ucing department.
department. Costs of the most
most widely u
department or the department with the highest total cost are first alloc
allo
other
other departments.
departments. The
The costs
costs of
of the
the next
next most
most widely-used
widely-used service
service depa
depa
then allocated. These costs will include those previously allocated fro
department.
department. These
These steps
steps continue
continue until
until all
all service
service department
department costs
costs
allocated.
allocated. Once
Once aa service
service department
department costs
costs have
have been
been allocated,
allocated,
allocation are made to it from other departments.
3. Reciprocal method. This method allocates costs by explicitly including
services provided among all service departments. For example, t
Department
Department 11 maintains
maintains all
all the
the computer
computer equipment
equipment in
in Service
Service Dep
Dep
Similarly,
Similarly, Servic
Servicee Departm
Department
ent 2 als
also
o provides
prov ides database
taba se suppor
supportt for De
The reciprocal allocation method fully incorporates interdepartmental re
into the service department cost allocation.

ACCOUNTING FOR SPOILAGE AND REWORK

SPOILAGE

These
These are
are units
units that
that do
do not
not meet
meet production
production standards.
standards. Spoilage
Spoilage may
may be
be normal
normal or
or
Costs
Costs of
of abnormal
abnormal spoilage
spoilage are
are not
not considered
considered to
to be
be inventoriable
inventoriable costs
costs and
and are
are wr
wr
costs
costs of
of the
the period
period during
during which
which the
the abnormal
abnormal spoilage
spoilage is
is detected.
detected. Normal
Normal spoilag
spoilag
inventoriable costs.
costs. When assigning
assigning costs, job-costing system
system generally
generall y disting
spoilage
spoilage attributable
attributable to
to aa specific
specific job
job from normal spoilage common to all jobs.

To illustrate the accounting for spoilage in job order costing, assume the following ex

In the Iraq Machine

Machine Shop,
Shop, 55 units
units out
out ooff job
job lot
lot of
of 50
50 units
units are
are spoiled.
spoiled. Costs
Costs assign
assig
the
theinspection
inspectionpoint
pointare
areP2,000
P2,000per
perunit.
unit.Our
Ourpresentation
presentationhere
herefocuses
focuseson
onhow
howthe
thePP
per
per unit is accounted for. When the spoilage is
is detected, the spoiled goods are in
P600 per unit, the net disposal value.

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 Wo rk in p r oc ess (sp eci f ic j ob )

Note:
Note: the
the Work
Work in
in Process
Process account
account has
has already
already been
been debited
debited (charged)
(charged) P10,000
P10,000 for
for t
units
units (5
(5 xx P2,000).
P2,000). The
The effect
effect of
of the
the P3,000
P3,000 entry
entry is
is to
to make
make the
the net
net cost
cost of
of norm
norm
P7,000
P7,000 (10,000
(10,000 – 3,000),
3,000), an additi
a dditional
onal cost of the 45 ((50
50 - 5) good
good unit
unitss produc
produce
e
cost
cost of
of the
the 45
45 good units
units is P97,000, comprising P90,000 (45 units x P2,000) i
produce
produce the
the good
good units
units plus
plus the
the P7,000
P7,000 net
net cost
cost of
of abnormal
abnormal spoilage.
spoilage. The
The cost
cost per
per
is P2,155.56 (P97,000 / 45 good units).

Normal spoilage common to all jobs. In

In some
some cases,
cases, spoilage
spoilage may
may be
be due
due to
to inte
inte
The
The spoilage
spoilage inherent
inherent in
in production
production will,
will, of
of course,
course, occur
occur when
when aa specific
specific job
job is
is work
wor
the
the spoilage
spoilage is
is not
not attributable
attributable to,
to, and
and hence,
hence, is
is not
not charged
charged to
to the
the specific
specific job.
job. II
spoilage is costed as manufacturing overhead. The journal entry is:

Mate
Materiria
als or sp
sp oil
iled
ed go ods
ods in
inve ntory
tory (5 un
un its x P6 00
00)) 3,
3,00
0000
M an u factur ing over heaead
d co
co ntro l (P 10 ,00 0 – P3 , 000) 7,00 0
Wo rk in P r oce ss (5 u n it s x P 2, 00 0) 10

Abnormal spoilage. If
Abnormal If the
the spoilage
spoilage isis abnormal,
abnormal, the
the net
net loss
loss is
is charged
charged toto an
an abn
ab
account.
account. Unlike
Unlike normal
normal spoilage
spoilage costs,
costs, abnormal
abnormal spoilage
spoilage costs
costs are
are not
not included
included asas
cost
cost of
of good
good units
units produce.
produce. TheThe total
total cost
cost of
of the
the 45
45 units
units is
is P90,000
P90,000 (45
(45 units
units xx P2
P2
cost per good unit
unit is P2,000 (P90,000 / 45 good units).
units). The entry
entry is:

M ate rial s (5 un its x P6 0 0) 3 ,00 0

L os s fr om a bno rmal spsp oi lage (P(P1 0,00 0 – P3 , 00 0 ) 7,00 0
Wo rk in P r oce ss (5 u n it s x P 2, 00 0) 10

REWORK

Rework is units of production

production that
that are
are inspected,
inspected, determined
determined toto be
be unacceptable,
unacceptable, re
re
sold
sold as
as acceptable finished
finished goods.
goods. We again
again distinguish
distinguish (1) normal
normal rework
rework attrib
specific job, (2) normal rework common to all jobs, and (3) abnormal rework.

To illustrate, consider the Iraq Machin e Shop data. Assume

Assume the five spoiled units ar
The
The journal
journal entry
entry for
for the
the P10,000
P10,000 of
of total
total costs
costs (the
(the details
details of
of these
these costs
costs are
are

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Assume the rework costs equal P3,800 (compose of P800 direct materials, P2,000 d
and P1,000 manufacturing overhead).

Normal rework attributable to a specific job. If the rework is normal but occurs
customer’s specification in the specific job, the rework costs are charged to th
journal entry is:

Work in Pr ocess ( specific jo b) 3 ,800

Materi als 80
Wages pay able 2,0
Applied manufacturing overhead 1,0

Normal rework common to all jobs. When rework is normal and not attributable t
job, the costs of rework are charged to manufacturing overhead and spread, throug
allocation, over all jobs. The journal entry is:

Manufacturing over head co ntro l 3,800

Materi als 80
Wages pay able 2,0
Applied manufacturing overhead 1,0

Abnormal rework. If the rework is abnormal, it is recorded by charging abnormal n

loss account. The journal entry is:

Loss from Ab no rmal Rewor k 3,800

Materi als 80
Materi als 2,0
Applied manufacturing overhead 1,0

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 PROBLEMS

1. Maganda Company manufactures pipes and uses a job order costing system.
the following jobs were started (no other jobs were in process) and the following
incurred:

Job X Job Y Job Z

Materi als P10,000 P 20,0 00 P15,000
Direct labor 5,000 4,000 2,50 0

In addition, estimated overhead of P300,000 and direct labor costs of P150

estimated to be incurred during the year. Actual overhead of P24,000 was incu
overhead is applied on the basis of direct labor costs. If only Job X and J
completed during the month, the journal entry to record the initiation of all jobs

a. Work-in- pro cess P79,500 

Material P4 5,000
Wages payable 11,500 
Applied factory overh ead 23,000
b. Work-in- pro cess 80,50 0 
Direc t materials 4 5,0 00 
Direc t l abor 1 1,5 00 
Factory overhead 24,0 00 
c. Work-in-process 80,50 0 
Direc t materials 4 5,0 00 
Direc t l abor 1 1,5 00 
Applied factory overh ead 24,000
d. Di rect l abo r 1 1,50 0 
Dir ect materials 45,00 0 
Work-i n-pro cess 56,5 00 
2. Malakas Company is a manufacturing concern using the perpetual inventory s
following materials inventory account data is provided:
Beginning balanc e
Other debts to the account

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 d. 1,155,000
3. The books of Chico Manufacturing Co. showed the following data for the month
2013:

Opening and closing inventories:

Oct. 1
Ra w mate rials P16,000
Work in Process 16,000
Finished goods 28 ,000
Direct labor cost, P32,000
Factory Overhead, 75% of direct labor cost
Cost of goods sold, P112,500

What is the cost of materials purchased during the month?

a. P87,200
b. 73,200
c. 72,000
d. 71,200
4. Durian Company has the following data in April 30, 2013:
A pril manufactur ing over head
Decrease in ending inventories:
Materials
Goods i n Process
Increase in ending inventory:
Finished goods
The manufacturing overhead amounts to 50% of the direct labor, and the dire
manufacturing combined equal 50% of the total cost manufacturing. All ma
purchased F.O.B. shipping point.

What is the cost of goods manufactured?

a. P180,610.80
b. 181,200.80
c. 182,300.00
d. 183,200.80

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 Di rect materia ls P7 ,000 P5 ,800 P 11,60 0
Di rect labor co st 6 ,600 6,000 8,400
Di rect labor hours 1 ,100 1,000 1,400
Unit s produce d 200 10 0 1,00 0
Manufacturing overhead is applied at a rate of P2 per direct labor hour
overhead, P3 per hour for fixed overhead.
Jobs 201, 202 and 203 were completed in July.
What is the cost of thecompleted jobs?
a. P62,900
b. 62,500
c. 72,900
d. 65,900

6. The Atis Corporation manufactures one product and accounts for cost by
system. You have obtained the following information for the year ended De
2013 from the corporation's books and records:

Total manufacturing cost added during 2013 based on P1,0

actual direct materials, actual direct labor and applied
factory overhead on actual direct labor cost
Cost of goods manufactured based on actual direct 9
materials and direct labor and applied factory overhead
Applied factory overhead to work in process based on
direct labor cost
Applied factory overhead for the year, based on total
manufacturing cost
Beginning work in process inventory was 80% of ending work in process inventor

What is the cost of direct materials used for year ended December 31, 2013?
a. P370,000
b. 970,000
c. 990,000
d. 970,500

7 Th P C j b d t t Th f ll i d t bt

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 1002 9, 150 3,700 7,250
1003 11,2 75 8,200 14,3 25
1004 3, 225 1,500 2,800
1005 6, 500 3,200 6,100
1006 2, 750 980 1 ,650

Manufacturing overhead costs are charged to jobs on the basis of P1.50 per d
hour. The actual manufacturing overhead cost for the month totalled P30,350. D
Job Order Nos. 1001, 1002, 1004 and 1005 were completed. Jobs 1001 and
shipped out and the customers were billed P9,000 for Job 1001 and P20,000 for

The cost of goods manufactured would be:

a. P55,500
b. 55,495
c. 56,495
d. 57,500

8. The Apple Manufacturing Company manufactures a product exclusively to custo

employing a job order cost system.

On August 1, 2013, its work in process inventory (5 partially completed jobs) ha

P3,000.

During August, no additional orders were put into production and 18 o

completed (total cost, P24,000) of which 14 (cost P20,000) were shipped.

Material requisition in August totalled P17,000 and direct labor cost were P8
beginning of the year, 2013, a predetermined overhead rate of 150% of expe
labor cots was established.

The August 31, 2013 work in process inventory is:

a. P4,000
b. 14,000
16 000

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 Twenty (20) hours of direct labor services were applied to the job at a cost of P5
Manufacturing overhead was applied at the basis of P2.50 per direct labor ho
overhead and P2 per hour variable overhead.

Job No. 210 was the only job completed during the third week.

The total cost of Job Order No. 210 is:

a. P5,390
b. 5,360
c. 5,350
d. 5,400

10. Peanuts Corporation uses a job-order cost system and has two production depa
and A, budgeted manufacturing costs for 2013 are as follows:

Di rect materia ls P700,000

Di rect labor 200,00 0
Manufacturing overhead 600,000
T
Di rect materia l
Direct labor:
Departm ent M P8 ,000
Departm ent A 12,000
Peanuts Corporation applies manufacturing overhead to production orders on
direct-labor cost using departmental rates predetermined at the beginning o
based on the annual budget. The total manufacturing cost associated with Job
2013 should be:
a. P50,000
b. 55,000
c. 65,000
d. 75,000

11. Banana Corporation has a job order cost system. The following debits (credits) a

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 Banana applied overhead to production at a predetermined rate at 90% based o
labor cost. Job No.232, the only job still in process at the end of March, 201
charged with factory overhead of P2,250. What was the amount of direct mater
to Jon No.232>
a. P2,250 
b. P2,500 
c. P4,250 
d. P9,000 

12. The work-in-process account of the Matamis Company which uses a job order
follows:
Work-In-Process
April 1 Balan ce P25,00 0 Finished Goods P1
Direct Material s 50,00 0
Direct la bor 40,000
Fac. Overhead Applie d 30,000

a. P8,700 
b. P7,600 
c. P4,500 
d. P4,200 
13. The following data were taken from the records of Sampaloc Company:
08/31/201 3 09/30/201
Inventories:
Raw Materi als P ? P5 0,000
Work i n process 80,000 95 ,00 0
Finished goods 60,000 78 ,000

Raw materials purchases, P46,000

Factory overhead, 75% of direct labor cost, P63,000
Selling and administrative expenses, 12.5% of sales, P25,000
Net income for September,2013 P25,000

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14. Macopa Corporation manufactures rattan furnitures sets for export and uses th
cost system in accounting for its costs. You obtained from the corporation’s
records the following information for the year ended December 31,2013:
- The work in process inventory on January 1 was 20% less than the work
inventory on December 31.
- The total manufacturing cost added during 2013 was P900,000 based on a
materials and direct labor but with manufacturing overhead applied on a
labor pesos.
- The manufacturing overhead applied to process was 72% of the direct labo
it was equal to 25% of the total manufacturing costs .
- The cost of goods manufactured, also based on actual direct labor a
manufacturing overhead, was P850,000.

The cost of direct materials used and the work in process i nventory on December 31

Dir ect materials used WIP Inven tory, 12/31/20 13

a . P1 ,07 5,0 00 P20 0,00 0 
b . P3 62 ,500 P250,000 
c. P312,500 P250,00 0 
d . P1 ,10 0,0 00 P27 5,00 0 
15. The Narra Company uses a job order cost accounting system. Overhead is
production at a predetermined rate based on direct labor cost.
The following posting appears in the ledger accounts of the company for the
September 2013:
De
W ork in Process,September 1 P3
Direct materia ls 6
Factory over head 4
Direct la bor 5

On September 30,2013, finished goods completed, from work in process cost P16
Job No. 327 was the only job not completed in September, and it has been cha
for factory overhead.

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16. Pears Factory uses a job order cost system. Per company records, the total charg
in-process in March 2013 were as follows:

Direct materials P1 25,00 0

Direct labor 122,000
Overhead- 75% of direct labo r cost

No jobs were in process at the beginning of the month. During the month, work in p
the amount of P310,500 was charged to finished goods. On March31,2012, the only
remaining was Job No., 100 with a direct labor cost of P10,000.

The cost of direct materials charged to Job No. 100 was:

a. P20,500 
b. P14,875
c. P10,500 
d. P15,000 

17. The factory ledger of the Malave Co. contains the following account:

Goods in Process
M aterials P4 0,0 00 Fin ished Goods P1
Labor 100,000
Overhead 80,000

The amount of materials charged to the uncompleted job was P28,000.

The amounts of labor and overhead charges for the uncompleted job are:

La bor Overhe ad 
a. P40,000 P32,000 
b. P32,000 P40,000 
c. P72,000 P40,000 
d. P40,000 P72,000 

18. Santol Company had the following inventories:

April 1 April 30

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Direct labor ra te per hour P 7. 50
Overhead rate per direct labor hour 10.00
Cost of g oods manu facture d 153 ,65 0

What is the prime cost during April 2013?

a. P81,650 
b. P80,000 
c. P90,000 
d. P96,000 
19. Kasoy Company has underapplied overhead of P45,000 for the year ended
31,2013. Before disposition of the underapplied overhead, selected Decemb
balances from Worley’s accounting records are as follows:

Sale s P1
Cost of g oods sold
Inventories:
Di rect material s
Work in process
Finished goods

Under Worley’s cost accounting system , over or underapplied overhead is allocated

appropriate inventories and cost of goods sold based on year end balances. In his 20
statement of comprehensive income, kasoy should report cost of goods sold of:

a. P682,50 0
b. P684,00 0
c. P756,00 0 
d. P757,50 0
20. Orange Company uses a job order cost system a nd applies factory overhead to
orders on the basis of direct labor cost. The overhead rates for 2013 a
Department A and 50% for Department B. Job NO.123, started and completed d
was charged with the following costs:

Department
A B

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 a. P135,00 0
b. P180,00 0
c. P195,00 0 
d. P240,00 0

21. Sampaguita Company uses a job order cost system. The following debits(credit
in Sampaguita’s work in process account for the month of April 2013:

April Description Amount

1 Balance P 4,000
30 Di rect materials 24,000
30 direct labor 16,000
30 factory overhead 12,800
30 T o finishe d goods (48,000)

Sampaguita applies overhead to production at a predetermined rate of 80% of d

costs. Job No. 5, the only job still in process on April 30,2013, has been charged
labor of P2,000. What was the amount of direct materials charged to Job No. 5?

a. P3,000 
b. P5,200 
c. P8,800 
d. P24,000 
22. Narra Marketing Corp. uses a job order cost system. It has three pro duction dep
Y and Z. the manufacturing budget cost for 2013 is a sfollows:

Dept. X Dept. Y Dep t.Z 

Direct materials P600,000 .00 P4 00,000 .00 P200,00 0
Direct labor 200,000.00 1,5 00,0 00.00 1,500,00 0
M fg. ove rhead 600,000.00 100,000 .00 200,00 0
For Job No. 01-90 completed in 2013, direct material cost was P75,000.00; direct lab
P40,000.00, Dept. Y, P100,000.00, Dept. Z, P20,000.00. the corporation applies ma
overhead to each job on the basis of direct labor cost using department rates prede
the beginning of the year based on the manufacturing budget cost.

The total manufacturing cost of Job No. 01-90 is:

4 0
 Beginning w ork i n process (5 partially compl eted jo bs) P3
Orders completed (1 8) 2,4
Orders shipped (14 ) 2,0
M at erials requisitioned f or the month 1,7
Direct la bor cost 8
Overhead ra te 150 of dir ect labo
The ending work in process inventory was:
a. P1,600,0 00
b. P1,400,0 00
c. P300,00 0 
d. P700,00 0

24. The accounting records for 2013 of Yamaha Music Co. showed the following :
Incre ase in raw m ateri als invent ory P4
Decrease in finished goods inventory 15
Raw materials purchased 1,2
Direct la bor payroll 60
Factory over head 90
Freight -out 13
The cost of raw materials used for the period amounted to:
a. P1,245,0 00
b. P1,290,0 00
c. P1,335,0 00
d. P1,380,0 00
25. The following information relates to Job No. 2468, which is being carried out
Company to meet customer’s order.
Department A De
Direct materia ls consume d P5 ,00 0 P3
Direct la bor hours employed 400
Direct la bor rate per hour 4
P roduction overhead per direct la bor hours 4
Administrati ve and other overhe ad 20% of full product ion co

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 d. P19,810 
26. The Handyman Corp. manufactures specialized precision tools for the electronics
receives various job orders. For the month of April, it started work in two orde
West. The total materials cost for both orders were estimated at P80,000 of
applies to East and 40% to West. Direct labor hours were estimated at 700 for Ea
for West. The labor rate amounted to P18 per hour. Variable overhead varies at
P10 per hour.
By the end of April, 75% of the required materials were issued to production am
P90,000. Also, the two orders were all 50% completed with respect to labor and
Labor hours for the month were charged at 360 to East and 180 to West. Variab
equated to the hourly rate given.
The total actual cost for East order for the month of April is:
a. P64,080 
b. P45,800 
c. P52,350 
d. P67,600 
27. Last month, Sago Company placed P60,000 of materials into production. T
Department used 8,000 labor hours at P5.60 per hour and the Bindi ng Depa
4,600 hours at P6.00 per hour. Factory overhead is applied at a rate of P6.00 per
in the Printing Department and P8.00 per labor hour in the Printing Departm
inventory accounts show the following balances:
Beginning En
Fi nished goods P 22,0 00 P1
W ork in process 15 ,000 1
M at erials 20 ,000 1
What is the cost of goods sold at normal costing?
a. P219,60 0
b. P214,60 0
c. P108,00 0 
d. P217,20 0
28. Banaba Company provided the inventory balances and manufacturing cost d
month of January.
Under the Banaba’s cost system any over or underapplied overhead is closed to

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 Month of January
Factory over head appl ie d P150,000
Cost of goods manufac ture d 51 5,000
Direct materia ls used 190,90 0
Actual factory ov erhead 14 4,.000
What is the cost of goods sold at actual costing?
a. P509,00 0
b. P524,00 0
c. P530,00 0 
d. P536,00 0
29. Polo Company’s Job 501 for the manufacture of P2,200 shoes was completed du
2013 at the following unit costs:
Direct materia ls P2 0
Direct la bor 18
Factory overhead (includes an allowance of P1 f or spoiled work) 18
Final inspection of Job 501 disclosed 200 spoiled shoes which were sold to a d
store for P6,000.
What would be the unit cost of the goods shoes produced on Job 501 if spo
charged to:
All Production Specific Job 501
a. P56.00 P57.5 0 
b. P53.00 P57.5 0 
c. P56.00 P56.0 0 
d. P53.00 P55.0 0 

Items 30 and 31 are based on the following data:

During March Trinity Company incurred the following costs on Job Order 111 for ma
of 200 units:

Original cost accumulation

Direct materia ls P6 60
Direct la bor 800
Factory over head (150 % of direc t labor c ost) 1,200
0

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30. The rework costs were attribu table to the exacting specifications of Job O rder
full rework costs were charged to the specific job. What is the cost per finished
Order 111?
a. P15.80 
b. P14.60 
c. P14.00 
d. P13.30 
31. Assuming the rework costs were attributable to internal failure, what is th
finished unit of Job 109?
a. P15.80 
b. P14.60 
c. P14.00 
d. P13.30 
32. True Value Company manufactures electric drills to the exact specification
customers. During April 2013, Job 403 for the production of 1,100 units was co
the following costs per unit:
Direct materia ls P1
Direct la bor 8
Appl ied factor y ove rhead 1
T otal P3
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. Th
units were reworked at a total cost of P500, and the spoiled units were sold to a
for P1,500. What should be the unit cost of the good units produced on Job 403?
a. P33
b. P32
c. P30 
d. P29
33. Some units of output failed to pass final inspection at he end of the manufacturi
The production and inspection supervisors determined that the incremental re
reworking the units exceeded the cost of rework. The rework of the defectiv
authorized, and the following costs were i ncurred in working the units:
Materials requisitioned from stores:
Direct materi als P5 ,000

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 a. Work in process inventory control for P19,000
b. Work in process inventory control for P5,000 and manufacturing overhea
P35,300.
c. Manufactu ring overhead control for P19,300.
d. Manufacturing overh ead control for P40,300.
34. Cosmos Corporation distributes service department overhead costs directly t
departments without allocation to the other service departments. Informat
month of May is as follows:
Service Departme
Maintenan ce Ut
Overhead costs incurre d P20,000 P1
Service provided to departments:
Mainte nance - 10
Uti lit ies 20% -
Producing- A 40% 30
Producing- B 40% 60
T otal
The amount of maintenance department costs allocated to Producing-A depa
May was:
a. P8,000 
b. P8,000 
c. P10,000 
d. P11,000 
Use the following data in answering numbers 35 to 40
Pomelo Company has two service department (1 and 2) and two operating
departments (A and B). Data provided are as follows:
Se rvi ce Op
Departments Departm
1 2 A
Direct costs P150 P3 00 P 5 ,000
Serv ices perf ormed by Department 1 40% 40%
Serv ices perf ormed by Department 2 20% 7 0%
Assuming the direct method is used to allocate service department costs:

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36. What is the total cost of Department A?
a. P5,000.0 0
b. P5,295.8 3
c. P5,362.50
d. P5,270.0 0
Assuming the step-down method is used to allocate service d epartment cos
37. What is the service department costs allocated to Department B?
a. P60.00 
b. P100.0 0 
c. P75.00 
d. P66.00 
38. What is the total cost of Department A?
a. P5,375
b. P5,350 
c. P5,075
d. P5,270 
Assuming the reciprocal method is used to allocate service department costs:
39. What is the service department cost allocated to Department B (rounded)?
a. P60.00 
b. P75.00 
c. P84.78 
d. P135.0 0 
40. What is the total cost of Department A (rounded)?
a. P5,365.0 0
b. P5,087.0 0
c. P5,375.00
d. P5,085.0 0
41. J &J Company has two service departments (SS1 and SS2) and two productions d
(PP1 and PP2). Departmental data for January were as follows:
SS1 SS
Cost s incurred P27,000 P1
Services provided to:
SS1 - 20

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 What is the total allocated service departmental costs to PP2 if the compan
reciprocal method of allocating the service department costs? (Round computa
nearest whole number).
a. P19,800 
b. P21,949
c. P22,500 
d. P23,051
Question 42-44 are based on the following data:
Baby Company’s beginning and ending inventories for the month of Novemb
November 1 No
Di rect material s P 67,0 00 P6
Work in process 145,000 17
Finished goods 85,000 7
Production data for the month of November follows:
Di rect labor P2
A ctu al factory overhead 13
Di rect material s pur chased 16
Tr ansportation i n
Purcha se returns and al lo wanc es
Baby uses one of the factory overhead control account and charges factory o
production at 70% of direct labor cost. The company does not formally
over/under applies overhead until year-end.
42. Baby Company’s prime cost for November is:
a. P370,00 0
b. P168,00 0
c. P363,00 0 
d. P170,00 0
43. Baby Company’s cost of goods sold for November is:
a. P484,00 0
b. P491,00 0
c. P502,00 0 
d. P476,00 0
44. Baby Company’s net charge to factory overhead control for the month of Novem

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 J & P tool Inc. has three service departments that support the production are
below is the estimated overhead by department for the upcoming year.

Estimated Nu
Service Dep artmen ts Overhe ad Em
Receiv ing P25,000
Repa ir 35,000
T ool 1 0,000
Production Departments
Assem bly
Boili ng
The Repair Department supports the greatest of departments, followed b
Department. Overhead cost is allocated to departments based upon the
employees.

45. Using the direct method of allocation, how much of the Repair Department o
be allocated to the Tool Department?
a. Zero
b. P875
c. P7,000 
d. P11,667 
46. Using the step-down method of allocation, the allocation from the Repair Dep
the Tool Department would be:
a. Zero
b. P875
c. P7,000 
d. P11,667 

Question 47 and 48 are based on the following information:

Roque Metal Shop Inc., manufactures metal products that require casting, such
blocks, pistons, and engine housings. During the current year, an order of 30,0
housing was begun on job number 202 for Mr. German. After the job was com
housing was inspected and 4% of the units were determined to be defective. M
agreed to accept the goods units only at 140% of cost. The spoilerd units can be sold
for P15 each. Spoiled goods are kept in an inventory account separate from finished

Total costs charged to job number 202 are:

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 c. P18.50 
d. P19.00 ’
48. If the spoilage is attributable to Job 202 only, what is the unit selling price of the
a. P25.37 5
b. P20.50 
c. P25.00 
d. P20.37 5
Use the following data for Question 49 and 50.
Muscle Machine Shop manufactures lifting equipment. One order from Simmer’s W
lifting equipment showed the following costs per unit:
M aterials P4 00
Labor 175
Factory overhead, 160% of direct labor cost (150% in
Cases in which any defective unit costs are to
Charged to a specific order).
Final inspection revealed that 15 of the units were not properly produced. Correct
defective unit requires P50 for materials, P80 for labor, and factory overhead at the
rate.
49. Assuming cost of defective units is charged to all the jobs, what is the unitr cost
goods?
a. P650 
b. P640 
c. P655
d. P550 
50. Assuming cost of defective units is charged to the job order, what is the unit c
unit manufactured?
a. P674.8 5
b. P475.5 0 
c. P656.25
d. P690.5 0 

4 0
 ANSWERS

1.a 11.c 21.b 31 .d 41.d

2.a 12.a 22.c 32 .b 42.a

3.b 13.b 23.a 33.d 43.b

4.b 14.b 24.a 34.c 44.c

5.a 15.c 25.b 35 .c 45.a

6.b 16.c 26.a 36 .c 46.b

7.b 17.a 27.a 37 .b 47.a

8.c 18.a 28.b 38 .b 48.a

9.d 19.d 29.a 39.c 49.c

10.d 20.a 30.a 40.a 50.c

SOLUTIONS AND EXPLANATIONS

1. Under normal costing, the Work in Process account is debited for the total manuf
costs of P79,500. The corresponding credit are: the Material account at actual costs
used of P45,000, Wages Payable account at actual cost of direct labor P11,500, and A
Manufacturing Overhead at estimated amount of P23,000 (P11,500 x 2). Therefore
correct.

2. The computations as follows:

Beginning i nventory of materials P2

4 0
3. Computed as follows:

Cost of g oods sold P11 2,000

Add in crease in finished goods in ventory 8,000
Cost of g oods manufac ture d 1 0
Add in creased in work in process inventory 0
Total manufacturi ng cost 128,000
Less: Fac tory overhead (32 ,000 x 7 5%) 24,000
Direct labo r c ost 32,000 56,00 0
Cost of raw mat erial used
Add in crease in raw materia l inventory
Cost of raw ma teri als purchased 0

4. The computation is:

M anufactur ing overhead (50% of direct l abor) P30,101.80

Direct labor(30, 101.8 0x2) 60, 203.60
Total equals 50% of total manufacturi ng cost
Thus, th e cost of raw materi al used equals
Total manufacturi ng cost 0
Add decrease in work in process in ventory
Cost of goods manufactured P181,20 0.80

5. Computed as follows:

20 1 202 203 To
Direct materials P7,000 P5 ,800 P11,600 P2 4
Direct labor 6 ,600 6,0 00 8,4 00 2 1,
Applied manufa cturing overhead 5,5 00 5,0 00 7,0 00 1 7,
T otal cost 0 0 0

6 . Dir ect material used (Squee ze) P37 0,0 00 

Di rect labo r (270,0 00 /75%) 360 ,000

Factory overhead applie d (1 ,0 00, 000x 27%) 27 0,000
Total manufacturi ng cost added 00

4 0
Schedule 1: Let x = ending WIP Inventory

Therefore:
P1,000 ,000 + .80x - x = P970,000
x = P150,000 (WIP - End)
.80x = P120,000 (WIP - Beg.)

7. The cost of finished Job order Nos. 1001, 1002, 1004 and 1005 is computed below

Direct material used P3 7,22 0

Direct labor 33 ,725
M anufactur ing overhead applied 28,32 0
Total charges to WIP 5
Less ending W IP
C ost of goods manufactured (finished) 5

8 . Dir ect materials P17,000

Di rect labo r 8,000
Factory overhead ( 150% x P8 ,000 ) 12,00 0
T ota l manu facturing cost s 0
A dd WIP , Aug. 1
T ota l cost of goods in process P40,0 00
Less cost of goods manufact ured 2 4,00 0
Work-in proce ss in ventor y, Aug. 31 0

9. Work- in proces s- beginni ng P 4,200

Di rect ma teri als 1,00 0
Di rect labo r (P5 x 2 0 hours) 100
A pplied manufactu ring overhead (P4 .50 x 20 hours) 90
Indi rect material s(directly identifi ed) 10
Total cost of Job Order No. 210 

10. The problems indicates that manufacturing overhead is applied to jobs on the ba
labor cost. Department M’s predetermined overhead rate is 300% (600,000/200,000

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Direct labor
D epartment M P8,000
D epartment A 12,00 0 20,0 00
Manufacturing overhead
Department M (8,0 00 x 300%) P24,000
Department A (12,00 0 x 5 0%) 16,000 30,0 00
Total manu fact ur ing costs 0 

11. The first step in the solutions approach is to determined the ending work-in proc
inventory, which consists of total costs charged to Job No. 232 to date. T he T -accou
below indicates an ending work-in process balance of P9,000.

work-in process

The P9,000 work-in process balance shows that the total cost of Job No. 232 to date
This P9,000 amount consists of direct materials, direct labor and overhead (given, P2
overhead has been applied at a rate of 90% of direct labor cost, resulting in the equa

90% x DL = P2,250
DL = P2,250 ÷ 90%
DL = P2,250

Knowing both direct labor and manufacturing overhead the amount of direct materi
be computed as follows:

Total cost of job P9

Less direct labor (P2 250 ÷ 90%) P2 500

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12. Total debit to work in process account P1
Less: Credi t to work in pr oce ss acc ount 12
Work in proce ss inventory, April 30 19
Less: labor and overhead charged to
Job No. 456: D. Labor P 3,00 0
Job . N o. 45 6: Overhead (P3,00 0 x 3/4 ) 2,250
Job No. 789: D. Labor (P2, 400 x 4/3 ) 3,200
Job No. 789: Overhead 2 ,400 10
Materi als charg ed to Job. No. 456 and Job No. 78 9

13. First the cost of goods manufactured is to be computed as follows:

Cost of g oods sold (P50,000 x 75/25) P15 0,000

Add: Increase in fi ni she d goods invent ory 18,0 00
Cost of goods manufactured during September 2013 0
NOTE: Since the selling and administrative expense of P25,000 is equal to 12.5% os s
net income of P25,000 is also equal to 12.5% of sales. Therefore, the gross profit (ne
plus selling and administrative expense) is equal to 25% of sales, so that the cost of g
is equal to 75% of sales.

The cost of raw materials inventory on August 31, 2013 can now be derived as follow

Cost of g oods manufac ture d P16 8,000

Add: Increase in work in process inventory 15,000
M anufactur ing cost s to process during Sept ., 201 3 183 ,000
Less: Coversion costs:
Di re ct labor (63 ,000/.7 5) 84, 000
Factory overhead 6 3,0 00 147 ,000
Raw mat erial used
Add: Raw mate rials inventory, Sep t. 30, 2013
Total raw materi al a vailable for use
Less: Raw mate rials purchases
Raw materia ls i nventory, August 31, 2013 

14. Direct material used is computed below:

4 0
Work in process inventory as 12/31/013 is computed as follows:

Work in process inventory, Jan. 1

Total manufacturing cost added in 20 13 P9 00,0 00
Le ss: Cost of goods manuf act ured 850,000
Incr ease in Work in process inventory
D ivided by
Work in process inventory, Jan. 1, 201 3 200,000
Add Increase in Work in process inven tory 50,000
Work in proce ss in ventory, 12 /31/0 13 

15. The costs of material charged to Job No. 327 is computed below:

Work in process , Sept. 1 P 30,000

Add: Manufacturing cost
Di re ct Materia ls P 60,000
Di re ct labor 50,000
Factory overhead 40,000 150 ,000
Total cost of goods pl aced in process
Less: Co st of goods manuf actured (completed)
Work in process , Sept. 30 (charged to Job No. 327 ) 20,000
Less: Direct labor [4,600 ÷(40,000/ 50,0 00)] P5,750
F ac tory overhead 4,600 10,350
Direct materials charged to Job No. 3 17 0 

16. Di rect materials P1 25,000

D ire ct labor 122 ,0 00
Overhead: 75% x P122,000 91,500
T otal charged to work in proc ess
Less: Amount char ged to work in process
T otal costs applicable to Job No. 100 28,000
Less: conversion costs of Job No. 100:
Direct labor P 10,00 0
O h d 75% P10 00 0 7 500 17 500

4 0
 Le ss: A pplied overhead (60 ,000 x 100 /75) 80 ,000
Pri me cost (direct ma teri al and labor)

P720,00
19. Cost of goods sold at normal 0
Add: Underapplied overhead allocated to cost of goods
sold:

Cost of goods sold

COGS + W IP + FG X Underapplied
overhead

Therefore:

720,000
720,000 + 54,000 + X 45,000 = 37,5 00
90,000
Cost of goods sold at actual 
costing

20. The total cost of any manufactured job includes direct material used, direct labo
factory overhead applied. In Department A, the overhead rate is 300% of direct labo
direct labor must be P20,000
DL x 200% = OH Applied
DL x 200% = P40,000
DL= P40,000 ÷ 200% = P20, 000
In Department B, the overhead rate is 50%, so overhead applied is 50% of P30,000, o
The cost of Job 123 totals P135,000 as computed below:
Direct material us ed (P 25,00 0 + P5,0 00) P 30,0 00
Direct Labor (P20,000 + P30,000) P5 0,000
Overhead applied (P40,00 0 +P15 ,000) 55,000
Total manu fact ur ing cost of Job

21. The problem states that Job 5 is the only Job still in process on April 30, so the to
charged to the Job must be equal the ending balance of the work process inventory
computed below:

4 0
Therefore the cost of direct materials is P5,200 [P8,800- (P2,000 + P1,600)]

22. Di rect materials P 75,00 0

Direct labor(P40 ,000 + P 10 0,000 x P20,000) 16 0,000

Applie d overhea d [(P 160,000 x ( P900,000/ 3,200,000)] 45,000

Total manufacturi ng cost P280,000

23. Direct materials P1,700,000

Direct labor 16 0,000
Applied overhead (P80 0,000 x 150 %) 45,0 00
Total manufacturing cost 3, 7
Add: W ork in process, beginning

T otal cost of goods pl aced in process 4, 000,000

Less: Cost of goods manufactured 2, 400,0 00
Work in process, end 

24. Raw materials purchased P1 ,29 0,000

Less: Increase in raw materials inventory 45,000
C ost of ra w materi als used 

Note: Freight out is irrelevant for this question because freight out is a selling expen
would not be used in the computation.

25. D irect ma teri als (P5 ,000 + P3,000) P

Direct Labor
D ept. A (400 X P 4) 1,6 00
Dept B (200 X P5 ) 1,0 00 2
Production overhead

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Therefore selling price is P20,800 (15,600 ÷75% )

26. D irect ma teri als (P9 0,000 x 60%) P54 ,000

Direct labor (3 60 x P18) 6,480
Variable ove rhead (360 x 1 0) 3,600
Actual cost of East P64,080

27. To compute the answer statemen t of cost of goods manufacturing and sold is pr
follows:

Direct material used P 60,00 0

Direct labor [(8000 hours x P 5.60) + (4 ,600 hours x P6. 00) ] 72,400
Applied manufacturing overhead [(8,000 x P6.00) + (4,600 hours x
P8.00 84,800

Manufacturing costs 217 ,200

Beginning work in proc ess 1 5,000

Total 232 ,200

Ending work in process 1 7,600

Cost of goods manuf actured 2 14 ,600

Beginning finished goods i nventory 22,00 0

Cost of goods a vailable for sale 2 36,600

Ending fini shed goods inventory 1 7,000

Cost of goods sold at normal costing 219,600 

28.

4 0
 50,000

Cost of goods s old ac tual (before adjustment) 530 ,000

Ove r-applied overhead (P150,000 - P144,00 0) (6,0 00)

Cost of goo ds sold act ual

29. If spoilage loss is charged to all production , the cost of good shoes in J ob 501 wo
the full unit cost of P56,which includes the normal spoilage allowance. Because the f
overhead of P18 per unit includes an allowance of P1 per unit over the entire prod u

If spoilage loss is charged o this specific Job 501,spoilage is a function of specific job
requirements rather than general factory condition. Then, the overhead rate should
the P1 allowance for spoiled work. Therefore the cost of all shoes, before adjustmen
spoilage is P55 (56-1). The cost of the 2,000 good shoes on Job 501 would be the tot
2,200 shoes less the scrap value of bad shoes.

C ost o f 2,200 shoes (2,200 x P55) P1 21, 000

Scrap value of bad shoes ( 6,0 00)
Net cost of Job 501

Cost per good shoes

(1 15,00 0 /2,000) P57 .50 

Note that the net cost of spoilage[ (200 x 55)- 6,000] is charged to the good shoes in
this case, the net spoilage cost is included in the charge to finished goods along with
good units.

30.
Original Cost (charged to work in process) P 2 ,660
Rework cost:
Di rect material s P1 00
Di rect labor 160
Factory overhead (150% x P 160) 240 500
Total cost 0
Divided by nu mber of units
U it t f J b d III 0

4 0
Divided by nu mber of units 200
Unit cost P13.30 

The total network cost is charged to Manufacturing Overhead control account.

32. Original cost ( 1 ,100 units x P30) P33,000

Rework cost of detective units 500

Proceeds from sale of spo iled un its (1,50 0)

Total cost P32,000
Divide by goods units (1,10 0 units - 100 spoiled uni ts) ÷1,000
Unit cost P3 2

33. Rework cost

Direct material s P5,000

Indirect materials 300

Direct labor 14,000

Applied manuf acturi ng overhead (1 4,000 x 1 50 %) 21,000

Total P 40,300

The total rework cost as computed above should be charged to manufacturing ove
control account since the overhead budget includes an allowance for rework.

34. Since the cost of service department costs is allocated directly to producing depa
then the direct method is to be used. Under this method, no allocation of services re
other service department is made. Therefore, the P20 ,000 is allocated to Producing
Department as follows:

Producing A ( 20,00 0 x 40 %/80%) 10,0 00 

P roducing B ( P2 0,000 x 40%/ 80%) 10,0 00

35. Allocated to Department B:

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Direct cost P5,00 0
Allocated cost
From department 1 (P150 x 40/60) P100
From department 2 (P3 00 x 70/80 ) 262.50 362.50
Total cost of De pt A 

37. Under the step down method the service department with the highest costs is to
allocated first. The allocation is as follows:

Service
Departments
1 2
Direct c osts P150 P300
Allocation of:

Department 2 cost ; 20:70 :1 0 60 (300)

Department 1 cost; 40:20

Total

The cost allocated to Department B is therefore P100.

38.
Direct costs P5,000
Alloc ate d costs (ref er to number 37) 35 0
Total cost of De pt A 0 

39. The allocation of cost of Service Department costs to Operating Departments un

Reciprocal Method is shown below:

Service Op
Departments De
1 2 A
Direct costs P150 P30 0
Alloc ation of Dept. 1, 40:40:20 (15 0) 60 P6 0
Alloc ation of Dept. 2, 20:70:10 (360 ) 25 2

4 0
Alloc ation of Dept. 1, 40:40:20 (.04) .02 .0 2
Alloc ation of Dept. 2, 20:70:10 - (.02 ) .0 2
Total allocated cost P365.2 2

An alternative way to implement reciprocal allocation is to formulate and solve linea

equations. This requires three steps as follows:

Step 1: Let D1 be the complete reciprocated costs of Department 1 and D2 the comp
reciprocated costs of Department 2. We then express the data as follows:

D1 = P150 + .20D2
D2 = P300 + .40D1

The .20 D2 in equation (1) is the percentage of Department 2 services used byDepa
The .40 D1 in equation (2) is the percentage of the Department 1 usedby Departme
complete reciprocated costs in equations (1) and (2), we mean the Department 1’s o
plus any interdepartmental cost allocations.

Step 2: Solve the Set of Linear Equations to Obtain the Complete Reciprocated Costs
Service Department. Substituting equation (2) into (1):
D1 =P150 = [.20(P300 + .40D1)]
D1 =P150 + 60 + .08D1
.92D1 = P210
D1 = P228.26
Substituting into equation (2)
D2 =P300 + .40(P228.26)
D2 =P300 + 91.30
D2 =P391.30
Step 3: Allocate the Complete Reciprocated Costs of Each service Departments to All
Departments (Both Service Departments and Operating Departments) on the Basis o
Percentages. The allocation is as follows:

Service O
Depart ments D
1 2 A
Direct costs P150 P30 0
Alloc ation of Dept. 1, 40:40:20 (228.26) 91.30 P91.30

4 0
 Direct costs P5,000
Allocate d co sts 365.22
Total

41. The correct answer is (d). the reciprocal method allocates service department co
other service departments as well as to production departments by means of simulta
equations, as shown below. Thus, total service cost allocated to PP2 is P23,051 [(40
P31,224) + (50% x P21,122)].
SS1 = P27 ,000 + .2 SS2
27,000 + [.2 (18,000 + .1 SS1)]
27,000 + 3,600 + .02 SS1
.98 SS1= P30,600
SS1= P31,224

SS2= P18,000 + .1 (P31,224)

= P21,122

42. The correct answer is (a). Prime cost is equal to direct materials plus direct labo
step is to compute the cost of raw materials used during the month as follows:
B eginning mate rial s inventory P67,000
Purcha ses 1 63,000
Tr ansportation- in 4,000
Purcha ses re turns and allowances ( 2,000)
Mat erial savai lable for use
Ending materials inve ntory )
Mat erial sused 0

Adding the P170,000 of materials used to the P200,000 of direct labor results in a to
P370,000.

43. The correct answer is (b). The computation is:

Cost of goods manufactured:

Pri me cost ( No.44) P 3 70,00 0
Applied o verhead (70 %of P200,000) 14 0,000
Manuf acturing cost 510,000
Work-in-Pr ocess, N ov.1 14 5,000

4 0
44. The correct answer is (c). The computation is:
Actual factory ov erhead P1 32,00 0
Appl ied factor y ove rhea d 140,000
Overapplie d ov erhead (c redit) 

45. The correct answer is (a). the direct method allocates service department cost
the producing departments without recognition of services provided among
departments. Hence, no service cost is allocated to the Tool Department because it
department.

46. The correct answer is (b). Under the step-down method, cost are alloc
departments. However, no reciprocal allocations are allowed. The process may beg
department that supports the greatest number of departments that incurs the large
that provides the greatest percentage of its services to other service departments
Repair Department is the logical starting point. Given that service costs allocat
department (service or production) on the basis of its proportion of employee
employees in the allocating department). The allocation of the Repair Department’
to the Tool Department is P875 {P35,000 x [1 employee / (1+2+25+12)]}.

47. The unit cost is P18 as computed below:

T otal manuf acturing costs P54 0,000
Cost of spoil ed units (30,000 x 4% ) x P 540 ,000/ 30,000 ( 21,600
Cost of the good units ( 30,000 x 9 6%) 28,800
Unit cost (P51 8,400 / 2 8,800 units)

48. Letter (a) is correct. The unit selling price is computed as follows:
T otal manuf acturi ng costs P54 0,000
Sc rap value of spoil ed uni ts ( 30,00 0 x 4% ) x P1 5 ( 1 8,0 00)
Cost of good units
Selling price (5 22,000 x 14%)
Unit se lling price (P730,800/28, 800 units)

49. Choice (c) is correct. The computation is:

Total manufacturing costs:
M at erials (200 x 400) P4 0,0 00
Labor (200 x 1 75) 35,00 0
Appl ied overhead ( 160% X 3 5,000 ) 56,0 00
T otal 0

4 0