ACCA107 PREFINALS

NOVEMBER 14, 2022

C. N. Dait

Name: ________________________________________ Section: ________

Good luck!

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question. On the answer sheet
provided, shade the box corresponding to your answer. Strictly no erasures allowed.

1. A(n) _________ method first traces costs to activities and then to products.
a. direct costing
b. absorption costing
c. traditional costing
d. activity-based costing

2. Traditional overhead allocations result in which of the following situations?

a. Overhead costs are assigned as period costs to manufacturing operations.
b. High-volume products are assigned too much overhead, and low-volume products are assigned too
little overhead.
c. Low-volume products are assigned too much, and high volume products are assigned too little
overhead.
d. The resulting allocation cannot be used for financial reports.

3. A basic assumption of activity-based costing (ABC) is that

a. All manufacturing costs vary directly with units of production.
b. Products or services require the performance of activities, and activities consume resources.
c. Only costs that respond to unit-level drivers are product costs.
d. Only variable costs are included in activity-cost pools.

4. Examples of activities at the batch level of costs include:

a. Cutting, painting and packaging
b. Scheduling, setting-up and moving
c. Designing, changing and advertising
d. Heating, lighting and security

5. Examples of activities at the product level of costs include:

a. Cutting, painting, and packaging
b. Scheduling, setting-up, and moving
c. Designing, changing, and advertising
d. Heating, lighting and security

6. It is a product costing system generally used in just-in-time inventory environment. This costing system
delays the costing process until the production of goods is completed by eliminating the detailed tracking
of cost throughout the production system and preparing journal entries only at trigger points.
a. Backflush costing
b. Standard costing
c. Normal costing
d. Traditional costing

7. Under Just-in-Time Inventory system and Backflush Costing, what costing method is ideally employed?
a. Normal costing
b. Actual costing
c. Standard costing
d. Budgeted costing

8. The cost accounting system that is noted for its lack of detailed tracking of work in process during the
accounting period is:
a. process costing c. standard costing
b. job order costing d. backflush costing

9. To backflush materials cost from Raw and In Process (RIP) to Finished Goods, the calculation would
be:
a. materials in ending RIP inventory plus materials received during the period minus
materials in the beginning RIP inventory
b. materials in ending finished goods inventory plus materials cost transferred from RIP
minus materials in beginning finished goods inventory
c. materials in beginning finished goods inventory plus materials cost transferred from RIP
minus materials in ending finished goods inventory
d. materials in beginning RIP inventory plus materials received during the period minus
materials in ending RIP inventory

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10. Just-in-time (JIT) inventory systems
a. result in a greater number of suppliers for each production process.
b. focus on a "push" type of production system.
c. can only be used with automated production processes.
d. result in inventories being either greatly reduced or eliminated.

11. ABM Company accumulated the following cost information for its two products, A and B:

A B Total
Production volume 2,000 1,000
Total direct manufacturing
labor hours 5,000 20,000 25,000
Set-up cost per batch P1,000 P2,000
Batch size 100 50
Total set-up costs incurred P20,000 P40,000 P60,000
Direct manufacturing labor
hour per unit 2 1

A traditional costing system would allocate set-up costs on the basis of direct manufacturing labor
hours. An ABC system would trace costs by spreading the costs per batch over the units in a
batch. What is the set-up cost per unit of product A under each costing system?

a. Traditional – P4.80; ABC – P10.00

b. Traditional – P2.40; ABC – P10.00
c. Traditional – P40.00; ABC – P200.00
d. Traditional – P4.80; ABC – P20.00

12. BAM Company has accumulated the following cost information for products A and B:

A B
Production volume 500 1,000
Engineering Costs incurred P2,000 P3,000
Engineering cost per batch P800 P1,500
Batch size 200 500
Total direct labor hours 750 1,400
Direct labor hours per unit 1.5 1.4

Assuming ABC is used, what is the engineering cost per unit for products A and B?

a. A – P3.39; B – P3.26
b. A – P1.60; B - P1.50
c. A - P10.00; B - P6.00
d. A - P4.00; B - P3.00

13. CHEN Company manufactures two products (A and B). The overhead costs (P84,000) have been
divided into three cost pools that use the following activity drivers:

Product Number of setups Machine hours Packing orders

A 10 500 75
B 10 2,000 175
Cost per pool P11,000 P60,000 P18,750

What is the allocation rate per packing order using activity-based costing?
a. P18,750 b. P75 c. P1,875 d. P250

14. Darren Company has identified the following overhead costs and activity drivers for next year:

Overhead item Expected Cost Activity Driver Expected Quantity

Setup cost P200,000 Number of setups 250
Ordering cost 80,000 Number of orders 1,600
Maintenance 400,000 Machine hours 2,000
Power 40,000 Kilowatt hours 40,000

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The following are two of the jobs completed during the year:

Job101 Job102
Direct materials P3,000 P4,000
Direct labor P2,800 P4,800
Units completed 100 160
Direct labor hours 50 80
Number of setups 1 4
Number of orders 4 5
Machine hours 20 25
Kilowatt hours 30 50

The company’s normal activity is 2,000 direct labor hours.

If the four activity drivers are used to allocate overhead costs, total overhead allocated to Job101
would be
a. P5,533 b. P4,830 c. P5,030 d. P5,630

15.Langdon Company has two categories of overhead: maintenance and inspection. Costs expected for
these categories for the coming year are as follows:

Maintenance P50,000
Inspection 75,000

The plant currently applies overhead using direct labor hours and expected capacity of 50,000
direct labor hours. The following data have been assembled for use in developing a bid for a
proposed job:
Direct materials P500
Direct labor P2,000
Machine hours 500
Number of inspections 4
Direct labor hours 800

Total expected machine hours for all jobs during the year is 25,000 and the total expected
number of inspections is 1,500.

Using activity-based costing and the appropriate activity drivers, the total cost of the potential job
would be
a. P1,200 b. P1,800 c. P3,700 d. P3,875

Use the following information for #16 to #18

Acton Company has two products: A and B. The annual production and sales of Product A is 800 units
and of Product B is 500 units. The company has traditionally used direct labor-hours as the basis for
applying all manufacturing overhead products. Product A requires 0.3 direct labor hours per unit and
Product B requires 0.2 direct labor hours per unit. The total estimated overhead for the next period is
P92,023.

The company is considering switching to an activity-based costing system for the purpose of computing
unit product costs for external reports. The new activity-based costing system would have three overhead
activity cost pools - Activity 1, Activity 2, and General Factory – with estimated overhead costs and expected
activity as follows:

Expected Activity
Activity Cost Pool Estimated overhead costs Product A Product B Total
Activity 1 P14,487 500 600 1,100
Activity 2 64,800 2,500 500 3,000
General Factory 12,736 240 100 340
Total P92,023

The General Factory activity cost pool’s costs are allocated on the basis of direct labor hours.

16. The predetermined overhead rate under the traditional costing system is closest to:
a. P37.46 b. P21.60 c. P13.17 d. P270.66

17. The overhead cost per unit of Product B under the traditional costing system is closest to:
a. P54.13 b. P7.49 c. P4.32 d. P2.63

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18. The overhead cost per unit of Product A under the activity-based costing system is closest to:
a. P86.97 b. P70.79 c. P81.20 d. P11.24

Use the following information for #19 to #20.

Zebra corporation has the following activities: creating bills of materials (BOM), studying manufacturing
capabilities, improving manufacturing processes, training employees, and designing tooling. The general
ledger accounts reveal the following expenditures for manufacturing engineering:

Salaries P150,000
Equipment 80,000
Supplies 20,000
Total P250,000

The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of
the equipment’s time is used for improving processes and sixty-five percent is used for designing tools.
The salaries are for two engineers. One is paid P100,000, while the other earns P50,000. The P100,000
engineer spends 40% of his time training employees in new processes and 60% of his time on improving
processes. The remaining engineer spends equal time on all activities.

Supplies are consumed in the following proportions:

Creating BOMS 25%

Studying capabilities 10%
Improving processes 20%
Training employees 25%
Designing tooling 20%

19. What is the cost assigned to the improving processes activity?

a. P250,000 b. P50,000 c. P87,500 d. P102,000

20. What is the cost assigned to the training employees activity?

a. P55,000 b. P250,000 c. P62,500 d. P162,500

21. Darwin Company has materials cost in the June 1 Raw and In Process of P10,000, materials received
during June of P205,000 and materials cost in the June 30 Raw and In Process of P12,500. The amount
to be backflushed from Raw and In Process to Finished Goods at the end of June would be:
a. P215,000 b. P202,500 c. P207,500 d. P217,500

22. Baylor Company has a cycle time of 3 days, uses a Raw and In Process (RIP) account, and charges all
conversion costs to Cost of Goods Sold. At the end of each month, all inventories are counted, their
conversion costs components are estimated, and inventory account balances are adjusted. Raw material
cost is backflushed from RIP to Finished Goods. The following information is for June:
RIP, beginning (includes P3,000 conversion cost) P29,250
FG, beginning (includes P10,000 conversion cost) 30,000
Raw materials received on credit 562,500
Direct labor cost, P375,000; Factory overhead applied, P450,000 825,000
RIP, ending (includes P4,500 conversion cost) 32,000
FG, ending (includes P8,750 conversion cost) 26,250

What is the conversion costs of units sold in June?

a. P825,250 c. P840,000
b. P825,000 d. P824,750

Use the following information for item #23-#25.

The following information below pertains to a company which manufactures a single product and uses
backflush costing.
Direct Materials purchased on account (sufficient to produce 42,000 units) P1,218,000
Direct materials used 1,160,000
Conversion cost incurred 800,000
Beg. Inventories none
No. of units finished 40,000 units
No. of units sold 39,000 units
No partially processed materials at the end of the period.

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Raw materials purchased is debited to RIP and conversion cost is expensed as cost of goods
sold.

23. The amount of materials backflushed from finished goods to cost of goods sold is
a. P1,218,000 b. P1,160,000 c. P1,131,000 d. P800,000

24. The balance of the RIP account at the end of the period is
a. P49,000 b. P58,000 c. P87,000 d. P0

25. To adjust the conversion cost component of finished goods at the end of the period
a. Finished goods will be debited for P20,000.
b. Finished goods will be credited for P20,000.
c. Finished goods will be debited for P49,000.
d. Finished goods will be credited for P49,000.

26. A company that manufactures a single product uses backflush costing. At the beginning of the period,
there were no inventories. During the period, 40,000 units were produced, of which 39,000 were sold. The
standard unit direct materials and conversion costs for the period were P30 and P18, respectively. The
actual unit direct materials and conversion costs for the period were P29 and P20, respectively.
Furthermore, any under- or overapplied conversion cost is not prorated between cost of goods sold and
finished goods but materials price variances are recognized. Materials efficiency variances should be
disregarded. The following additional information is also available for the period:

Direct material purchased (actual cost of materials sufficient P 1,218,000

to produce 42,000 units)
Direct materials used (standard cost) 1,200,000
Conversion costs incurred (actual cost) 800,000

Assume the company’s backflush accounting system records the purchase of direct materials and the
completion and sale of finished goods. The entry to record finished goods is
a. Finished Goods 1,920,000
Raw and in process inventory 1,200,000
Conversion cost applied 720,000
b. Finished Goods 1,960,000
Raw and in process inventory 1,160,000
Conversion cost applied 800,000
c. Finished Goods 2,000,000
Accounts payable 1,200,000
Conversion cost applied 800,000
d. No entry

27. Nestle Inc. is employing a sophisticated just-in-time manufacturing system. The company uses backflush
costing for recording its production. The following transactions occurred for the year ended December 31,
2020:

• Purchased P170,000 of raw materials on account.

• All materials purchased were requisitioned for production.
• Incurred direct labor costs of P80,000.
• Actual factory overhead cots amounted to P122,000.
• Applied conversion costs totaled P202,000 including direct labor cost of P80,000.
• All telephones were completed and sold.

What is the cost of goods sold for the year ended December 31, 2020?

a. P372,000
b. P202,000
c. P250,000
d. P292,000

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C. N. Dait
Use the following information for #28 to #30.

SMC Inc. employs Just-in-Time and Backflush Costing Systems for the production of goods for the
year ended December 31, 2020. The following transactions summarize the major steps in SMC’s
production during the year 2020.

• Raw materials received from suppliers amounted to P4,000.

• Direct labor costs of P10,400 and overhead costs of P7,800 were incurred and applied,
respectively, during the year of 2020.
• The cost of work-in-process at December 31, 2020 was P3,600. This cost was determined
through the production report and is composed of the following elements of cost:

Direct materials P1,500

Direct labor 1,200
Overhead 900

• In addition, the finished goods inventory at December 31, 2020 was P6,500 consisting of

Direct materials P1,500

Direct labor 2,850
Overhead 2,150

28. What is the amount of direct materials backflushed from raw and in process account to finished
goods?
a. P1,500
b. P4,000
c. P2,500
d. P1,000

29. What is the amount of direct materials backflushed from finished goods to cost of goods sold?
a. P1,500
b. P4,000
c. P1,000
d. P2,500

30. What is the amount of cost of goods sold for the year ended December 31, 2020?
a. P22,200
b. P18,600
c. P12,100
d. P15,700

*** END OF EXAM***