COST ACCOUNTING

PROBLEM 1
The comparative inventory data for MBC Manufacturing Corporation for the year ended December 31, 20x6 is
summarized below:
January 1 December 31
Materials control P750,000 P760,000
Work in process - material 200,000 190,000
Work in process - labor 190,000 200,000
Work in process - overhead 280,000 240,000
Finished goods control 700,000 730,000
During the year 20x6, the corporation completed, among others, the following transactions:
a) Purchases, all on account, direct materials, P3,000,000; indirect materials, P 600,000.
b) The total materials requisitioned for use during the year included P540,000 for indirect materials, P63,000
for shipping of finished goods deliveries, and P52,500 for general office repairs.
c) The payroll for the year was broken down as follows: direct labor, P2,500,000, indirect labor, P825,000;
sales salaries, P1,260,000, and office salaries, P690,000.
d) Other manufacturing expenses vouchered amounted to P1,380,000, and depreciation charges were P375,000
on plant assets, P180,000 on delivery trucks and P120,000 on office equipment.
e) Manufacturing expenses were applied to production at predetermined rate equal to 130% of direct labor
cost.
f) Completed goods were transferred to the finished goods warehouse.
g) All sales are made on terms 2/10, n/30; billing price is at 150% of cost.
h) At the end of the year, any overapplied or underapplied manufacturing expenses is treated as an adjustment
to the cost of goods sold.
Required:
1. Prepare entries in general journal form, to record the above transaction of MBC Manufacturing Corporation
for the year 20x6.
2. Prepare the statement of cost of goods manufactured and sold for the year ended Dec 31, 20x6.
3. Determine the following amounts:
a. Prime cost c. Product cost
b. Conversion cost d. Period cost

PROBLEM 2
For the year just ended, Royal Corporation reported total manufacturing costs of P3,600,000 and cost of goods sold
of P3,750,000. For the past periods, the factory overhead had been about 1/2 of materials costs and 2/5 of the
conversion costs. Raw materials on January 1 of P240,000 was 6/5 of the December 31 inventory, while work in
process of P160,000 on January 1 increased by 1/4 at the year-end. The finished goods inventory decreased by 1/3.

Required: Prepare a statement of cost of goods sold for the year just ended, giving as much details as can be
determined from the information given.

PROBLEM 3
ABC Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the
following inventories at the beginning and end of the month of January.
January 1 January 31
Finished goods P125,000 P117,000
Work in process 235,000 251,000
Raw materials 134,000 124,000
The following additional manufacturing data pertains to January operations:
Raw materials purchased P191,000
Direct labor 300,000
Actual manufacturing overhead 175,000
ABC Company applies manufacturing overhead at the rate of 60 percent of direct labor cost. Any overapplied or
underapplied manufacturing overhead is accumulated until the end of the year.
Required: Compute for the following:
1. ABC Co’s prime cost for January.
2. ABC Co’s total manufacturing cost for January.
3. ABC Co’s cost of goods manufactured for January.
4. ABC Co’s cost of goods sold for January.
5. ABC Co’s balance in Manufacturing Overhead account on January 31. Debit or Credit.

JOB ORDER COSTING

PROBLEM 1
TV Company uses a job-order costing system and the following information is available from its records. The
company has three jobs in process: #1, #2, and #3.
Raw material used P300,000
Direct labor per hour P20.00
Overhead applied based on direct labor cost 120%
 Of the raw materials used, total of 85% were traceable to the specific jobs (Job #1: 25%; Job #2: 30%; Job #3: 30%)
and the balance of the requisitions was considered indirect. Direct labor hours per job are 2,800; 3,300; and 4,000;
respectively. Indirect labor is P100,000. Other actual overhead costs totaled P150,000.
1. Assuming all of the jobs were completed and the company used actual costing, what is the
total cost of goods manufactured?
2. Assuming only Jobs No. 2 and 3 were completed and sold, what is the cost of goods sold at
year end?
3. What is the under (DR) or over (CR) applied overhead?

POBLEM 2
ABC Company uses a job-order costing system. At the beginning of January, the company had two jobs in process
with the following costs:
Direct Material Direct Labor Overhead
Job 001 P3,400 P510 P255
Job 002 1,100 288 ?
ABC pays its workers P9.00 per hour and applies overhead on a direct labor hour basis.
1. What is the overhead application rate per direct labor hour?
2. How much overhead was included in the cost of Job 002 at the beginning of January?
3. During January, ABC’s employees worked on Job 003. P714 of overhead had been applied to this job.
Total manufacturing cost was P6,800 including the total cost of all other jobs in the amount of P3,981.
What amount of direct material is included in Job 003?

PROBPLEM 3
XYZ Manufacturing was a company engaging in manufacturing car parts. During this year, XYZ Manufacturing
made 30,000 units of clutch kits. However after further inspection, it was determined that 4% of the units made were
spoiled. These spoiled units can be sold at P150 each.

The following were the total cost of the 30,000 clutch kits:
Direct materials P2,760,000
Direct labor (P140 per direct labor hour) P 840,000
Applied overhead P1,800,000
(300 per direct labor hour inclusive of P50 allowance for spoiled work)
1. Assume that the spoiled goods were due to internal failure, what is the cost transferred to finish goods
at the end of the year?
2. Assume that the spoiled goods were due to exacting specifications, what is the cost per good unit at the
end of the year?

PROBLEM 4
AAA Inc. manufactured coil over springs for cars. During this year, AAA Inc. manufactured 200 units coil over
springs. After final inspection, it was determined that 15 units were defective. The cost per unit to rework the defective
units were the following: P100 for direct materials, P160 for direct labor and the appropriate factory overhead rate.

The following were the unit cost for the 200 coil over springs:
Direct materials P800
Direct labor P350
Applied overhead 160% of direct labor cost
(150% in case defective units were charged to specific order)
1. Assume that the defective goods were charged to all jobs, what is the cost transferred to finish goods
at the end of the year?
2. Assume that the defective goods were due to specific job, what is the unit cost of each good unit at the
end of the year?

PROCESS COSTING
PROBLEM 1
Compute the EUP for each of the following independent cases below:
A. The production of data of Jewel Company for the month of December, 20x2, follow:
Department A Department B
In process, December 1 5,000 10,000
Stage of completion 1/2 10%
Started in process 25,000 22,000
In process, December 31 ? 5,000
Stage of completion 25% 4/5
Department A applies materials as follows:
1/5 when the process is started; 30% when the process reaches ½ completion, and the balance at the end of
the process. In Department B, materials are applied 60% at the start of the process and 40% at the end.
(Compute for material equivalent production only in both departments).

B. Materials are issued at the following stages:

At the start of the process 25%
 When work is 50% completed 50%
When work is 75% completed balance
Conversion costs are applied uniformly.
In process, June 1 (3/4 incomplete) 20,000 units
Transferred out 85,000
In process, June 30 (2/5 incomplete) 25,000

C. In process, beginning (40% incomplete) 35,000 units

Started in process during the period 95,000
Transferred out to next department 86,000
In process, end (3/5 complete) ?
Materials are issued 100% at the start of the process, and conversion costs are applied uniformly.

D. In process, beginning (1/4 complete) 1,000 units

Started in process 7,500
In process, end (2/5 complete) 2,500
Materials are issued as follows: 40% at the start and the balance at the end of the process. Conversion costs are applied
evenly.

PROBLEM 2
COMPRE COMPANY uses process costing to account for its operations in its two departments. The company uses
FIFO in their first department and then it transfers the items to the second department which uses Weighted Average
to account for the goods they manufacture. The following are the data related to the company’s operations for the
month of October.
Beginning Ending
Materials P150,000 ?
Finished Goods P100,000 ?

Beginning Incurred this month

Department 1 1,000 units
Materials (30% complete) P92,075 P495,925
Conversion Cost (55% complete) P15,020 1,000 hrs.

Department 2 2,000 units

From Department 1 P20,755
Materials (60% complete) P148,720 P250,000
Conversion Cost (80% uncomplete) 74,160 500 hrs.

During the month the company purchased materials costing P800,000 and started to work on 12,000 units. Laborers
are paid at the rate of P60 per hour and factory overhead is applied at the rate of 50% of direct labor in Department 1
and 100% of direct labor in Department 2.

At the end of the month, Department 1 has 3,000 units in process (25% uncomplete as to materials, 60% complete as
to Conversion cost), while Department 2 has 4,000 units in process (80% complete as to materials and 40% to complete
as to conversion). 1,000 units remain unsold at the end of the month. The company sells their goods at a 100% mark-
up on cost.
1. Prepare the journal entries for October.
2. Determine the EUP for Department 1 and 2.
3. Prepare a cost of production report for Department 1 and 2.
4. Prepare a cost of goods sold statement for October.

PROBLEM 3
ABC Inc. manufactures computer memory cards. During January our accounting department noted that there was no
beginning inventory. Direct materials incurred totaled P147,000 during the month. Work-in-process records revealed
that 15,000 cards were started in January, 12,000 cards were complete, and 1,500 units were spoiled as discovered.
Ending work-in-process units are 75% complete in respect to direct materials costs.
1. What are the respective direct material costs per equivalent unit?
2. What is the cost of materials transferred out?
3. What is the amount of materials costs allocated to the work-in-process ending inventory?
4. Assume all materials are added at the start of the process and inspection takes place when the units are 70%
complete. Allocate the total cost of materials incurred to the costs transferred out and in the work-in process
ending. (Assume total materials costs amount to 148,500.)

PROBLEM 4
ABC manufactures small tables in its Processing Department. Direct materials are added at the initiation of the
production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout
the product cycle. Before inspection, some units are spoiled due to non-detectible materials defects. Inspection occurs
when units are 50 percent converted. Spoiled units generally constitute 5 percent of the good units. Data for December
20x8 are as follows:

WIP, Beginning inventory 12/1/20x8 10,000 units

Direct materials: 100% complete
Conversion costs: 75% complete
Started during November 40,000 units
Completed & Transferred Out 12/31/20x8 38,400 units
WIP, Ending inventory 12/31/20x8 8,000 units
Direct materials: 100% complete
Conversion costs: 40% complete
Costs for December:
WIP, Beginning Inventory:
Direct materials 50,000
Conversion costs 24,910
Direct materials added 200,000
Conversion costs added 140,010

1. Determine the abnormal spoilage.

2. Determine the normal spoilage.
3. Prepare a cost of production report using WAVE.
4. Prepare a cost of production report using FIFO

FACTORY OVERHEAD
Problem 1
CHARLIE Corporation has three production departments: X, Y, and Z. It also has two service departments:
Administration and Personnel. Administration costs are allocated based on value of assets employed, and Personnel
costs are allocated based on number of employees. Assume that Administration provides more service to the other
departments than does the Personnel Department. The corporation estimates that each employee will work 2,000 hours
each year.
Department Direct Costs Employees Asset Value
Administration 1,800,000 40 800,000
Personnel 600,000 20 200,000
X 1,400,000 30 600,000
Y 400,000 10 1,000,000
Z 500,000 20 1,400,000

1. Using the direct method, what amount of administration costs is allocated to X?

2. Using the direct method, what amount of personnel costs is allocated to Y?
3. Using the step method, what is the estimated factory overhead rate per hour in department Z?
4. Using the step method, what mount of administration costs is allocated to X?
5. Using the reciprocal method, what amount of administration costs is attributable to Y?
6. Using the reciprocal method, what amount of personnel costs is allocated to Z?

Problem 2
ABC Manufacturing has the following budgeted overhead costs for 20x1 for producing product X:
Cost Amount
Electricity P 4,000,000
Indirect materials 6,000,000
Assembly 2,000,000
Quality control inspections 6,000,000
Test runs 3,000,000
Total budgeted overhead cost P 21,000,000

For the past years, the cost accounting department has been charging overhead production costs based on machine
hours. The estimated capacity for the year is 2,000,000 machine hours.

The company is now shifting to activity-based costing, which they believe would give them a more reliable cost data
that, in turn, would result to a better competitive advantage when pricing their products. The production manager
provided the following data regarding expected 20x1 activity for the cost drivers of the preceding budgeted overhead
costs.
Cost Activity Drivers
Electricity 100,000 kilowatt hours
Indirect materials 2,400,000 grams
Assembly Time 500,000 hours
Quality control inspections 800,000 inspections
 Test runs 100,000 test runs

The company received an offer to sell 5,000 units of product X to ZEEK Company. The head of the cost accounting
department prepares cost estimates for producing 5,000 units of product X.

Cost Amount
Direct materials P 500,000
Direct labor 800,000
Machine hours 10,000
Direct labor hours 15,000
Electricity-kilowatt hours 1,500
Indirect material (grams) 13,000
Assembly 1,000
Quality control inspections 1,000
Test runs 1,000
Determine:
1. Predetermined overhead rate under traditional method.
2. Cost per unit of product X under traditional method.
3. Cost per unit of product X under the proposed ABC method.

JOINT COSTS AND BY-PRODUCT

PROBLEM 1
XYZ Company produces three products from the same process and incurs joint processing costs of P200,000.
Gallons Sales price per gallon Disposal cost per Further processing Final sales price
at split-off gallon at split-off costs per gallon
A 4,800 P250.00 P 135.00 P 50.00 P350.00
B 2,000 200.00 36.00 100.00 500.00
C 3,200 500.00 150.00 100.00 750.00

Disposal costs for the products if they are processed further are:
A, P 150.00; B, P 220.00; C, P 50.00.
1. How much of the is allocated to Product A using the physical method allocation?
2. How much is the cost per gallon of Product B, assuming that joint costs are allocated using the sales
value of the products at split-off, and that B were processed further after split-off?
3. How much is the gross profit attributable to Product C, assuming that joint costs are allocated using
the Net Realizable Value at Split-off approach, and after being processed further, all gallons of Product
C were sold at its estimated final sales price per gallon?
4. How much is the net income attributable to Product A, assuming that joint costs are allocated using
the Approximate Net Realizable Value, and after being processed further, 1,800 gallons of Product A
was sold during the year?

PROBLEM 2
BETA, Inc. manufactures Product A from a process that yields a by-product called Z. The by-product requires
additional processing cost of P30,000, and will require selling and administrative expenses totaling P20,000.

Information concerning a batch produced during the year ended December 31, 20x1 follows:
Product Units produced MV at Split-off Units sold
A 100,000 P75 60,000
Z 8,000 P10 8,000
The joint costs incurred up to split-off points are:
Direct materials 2,000,000
Direct Labor 800,000
Overhead 200,000

The selling and administrative expense of BETA for the year ended December 31, 20X1 is P1,000,000, exclusive of
that for the by-product.
1. Assuming that after further processing costs, the by-product was sold at its MV at split-off, what is the
gross profit for the year if the net revenue from the by-product is treated as other income?
2. Assuming that after further processing costs, the by-product was sold at its MV at split-off, what is the
gross profit for the year if the net revenue from by-product is presented as additional sales revenue?
3. Assuming that after further processing costs, the by-product was sold at its MV at split-off, what is the
net income for the year if the net revenue from by-product is presented as deduction from the cost of
goods sold?
4. Assuming that after further processing costs, the by-product was sold at its MV at split-off, what is the
net income for the year ended if the net revenue from by-product is presented as deduction from the
total manufacturing cost of the main product?
5. Assume that a unit of by-product Z can be sold for P15 after incurring P4 disposal cost for a normal
profit of 20% of sales. Additional manufacturing costs of P3 are to be incurred after separation. How
much is the cost of ending inventory of Product X on December 31, if the company recognizes by-
product when produced, using the reversal cost method?

STANDARD COSTING/JIT
PROBLEM 1
ABC’s standard cost per unit of Material X is P25.00 per pound. During the current month, 10,000 pounds of Material
X were purchased by ABC at a total cost of P241,500. 9,000 pounds were used during the month. The standard
quantity for actual production is 8,500 pounds.
Required:
1. Total Materials Variance
2. Purchase Price Variance
3. Price Usage Variance/Price Variance/Spending Variance
4. Quantity variance/Efficiency Variance
5. Journal entries for the above transactions

PROBLEM 2
During the month, 1,200 units of PRODUCT Y were produced. Actual labor required was 325 direct labor hours at
an actual cost of P6,500. According to the standard cost card for PRODUCT Y, 300 hours of labor should be required
per unit of PRODUCT Y, at a standard cost of P18 per labor hour.
Required:
1. Total Labor Variance
2. Compute the labor rate variance/spending variance
3. Compute labor efficiency variance
4. Journal entries for the above transactions

PROBLEM 3
ACDC CO. manufactures doors with the following standard quantity and cost information per door:
Variable overhead 5 machine hours at P10.00 50
Fixed overhead 5 machine hours at P5.00 25
Overhead rates are based on normal capacity of 5,000 machine hours

During November, the Company produced only 800 doors and the following costs were incurred for the month:
Variable overhead P42,750 (based on 4,500 machine hours)
Fixed overhead P27,000 (based on 4,500 machine hours)
Required:
1. Total factory overhead variance
2. Spending Variance
3. Volume Variance
4. Journal entries for the above transactions

PROBLEM 4
BB Company manufactures product A. the transactions for the month of February were as follows:
Purchase of raw materials P1,000,000
Labor/wages incurred 300,000
Factory overhead incurred 400,000
Units completed 50,000 units
Units sold 49,900 units
There are no beginning inventories. The standard cost per unit of output is P34.80 (19.8 for raw materials, P6 for labor
and P9 for applied overhead)
1. Prepare the entries using standard costing.
2. Prepare the entries assuming the company uses a just-in-time production process with the following trigger
points:
a. Purchase of materials, completion of the good finished units and the sale of the goods.
b. Purchase of the materials and sale of the goods
c. Completion of the good units and sale of the goods
d. Sale of the finished goods