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: 9. Costs a. b. c. d. C

of goods manufactured in a manufacturing company is analogous to Ending inventory in a merchandising company Beginning inventory in a merchandising company Cost of goods available for sale in a merchandising company Cost of goods purchased in a merchandising company D

Answer:

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 P 340,000 45,000 385,000 (52,000) 333,000 P 429,000 333,000 96,000

Solution: Cost of Goods Manufactured Finished Goods, Beginning Total Goods available for Sale Finished Goods, ending Cost of Goods Sold Sales (SQUEEZE) COGS Gross Profit

2. The following information was taken from Jeric Comapanys 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. Jerics 2011 cost of goods sold is a. b. c. d. P P P P 950,000 965,000 975,000 995,000 A

Answer:

Solution: Direct Materials Purchases Less: Increase in raw materials Direct Labor Factory Overhead Manufacturing Cost Add: Decrease in Finished Goods Cost of Goods Sold

430,000 15,000

415,000 200,000 300,000 915,000 35,000 950,000

Items 3 through 5 are based on the following information pertaining to Glenn Companys manufacturing operations. Inventories Direct Materials Work-in-process Finished goods 3/1/11 3/31/11 P 36,000 P 30,000 18,000 12,000 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 10.00 hour 3. For the month of March 2011, prime cost was a. b. c. d. P P P P 90,000 120,000 144,000 150,000 D

Answer: Solution:

Direct Materials Direct Mats. Beg. Add: Purchases Less: Direct Mats. End. Direct Labor Prime Cost

36,000 84,000 (30,000)

90,000 60,000 150,000

4. For the month of March 2011, conversion cost was a. b. c. d. P P P P 90,000 140,000 144,000 170,000 B

Answer: Solution:

Direct Labor Factory Overhead (60,000/7.50)=8000*10 Conversion Cost

60,000 80,000 140,000

5. For the month of March 2011, cost of goods manufactured was a. b. c. d. P P P P 218,000 224,000 230,000 236,000 D Direct Materials used Direct Materials, 3/1/11 Add: Purchases Total available for use Less: Direct Materials, 3/31/11 Direct Labor Factory Overhead Total Manufacturing Costs Add: Work in process, 3/1/11 Cost of Goods put into process Less: Work in process, 3/31/11 Cost of Goods manufactured 36,000 84,000 120,000 30,000

Answer: Solution:

90,000 60,000 80,000 230,000 18,000 248,000 12,000 236,000

Items 6 and 7 are based on the following data of Matatag Company for the month of March 2011. Materials Work in Process Finished Goods March 1 40,000 25,000 60,000 March 31 50,000 35,000 70,000

March 1 to 31, 2011 Direct Labor Cost FOH-Applied Cost of Goods Sold 120,000 108,000 378,000

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: Solution: Direct materials used Materials, Beg. 40,000 Purchases (SQUEEZE) No. 6 180,000 Less: Materials, End. (50,000) 170,000 Direct Labor 120,000 Factory Overhead 108,000 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 388,000 (SQUEEZE) No. 7 Add: Finished goods, Beg. 60,000 Goods Available for Sale 448,000 Less: Finished goods, End. (70,000) Cost of Goods Sold 378,000 Some selected sales and cost data for Alcid Manufacturing Company are given below: Direct materials used Direct labor Factory overhead (40% variable) Selling and administrative expenses (50% direct, 60% variable) P 100,000 150,000 75,000 120,000 B

8. Prime cost was: a. b. c. d. P P P P 175,000 250,000 130,000 225,000 B

Answer: Solution:

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

P 100,000 P 150,000 P 250,000

Answer: Solution:

Direct labor Factory overhead Conversion cost 10. Direct cost was: a. b. c. d. P P P P 225,000 250,000 310,000 325,000 C

P 150,000 P 75,000 P 225,000

Answer: Solution:

Direct Selling and administrative Expense (P 120,000 x 50%) Direct materials Direct labor Direct cost

P 60,000 100,000 150,000 P 310,000

11. Indirect cost was: a. b. c. d. P P P P 75,000 135,000 195,000 325,000 B

Answer:

Solution: Indirect Selling and Administrative Expense (P 120,000 x 50%) Factory overhead Indirect cost 12. Product cost was: a. b. c. d. P P P P 135,000 250,000 325,000 370,000 C

P 60,000 75,000 P 135,000

Answer: Solution:

Direct materials Direct labor Factory overhead Product cost 13. Variable cost was: a. b. c. d. P P P P 250,000 280,000 352,000 370,000 C

P 100,000 150,000 75,000 P 325,000

Answer: Solution:

Variable Selling and Administrative Expense (P 120,000 x 60%) Direct materials Direct labor Variable factory overhead (P 75,000 x 40%) Variable cost

P 72,000 100,000 150,000 30,000 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. b. c. d. P P P P 585,000 600,000 610,000 625,000 D

Answer: Solution:

Manufacturing costs Add: Finished goods, beginning Goods available for sale

P 600,000 25,000 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. b. c. d. P P P P 10,000 20,000 110,000 25,000 B 30,000 Direct Materials Direct Labor 40,000 Factory Overhead 20,000 Manufacturing Costs 90,000 Add: Work in process, Beg. 20,000 (SQUEEZE) Cost of goods put into process 110,000 Less: Work in process, End. 15,000 Cost of Goods Manufactured 95,000

Answer: Solution:

The Lion Companys cost of goods manufactured was P 120,000 when it sales were P 360,000 and its gross margin was P 220,000. 16. If the ending inventory of finished goods was P 30,000, the beginning inventory of finished goods must have been: a. b. c. d. P P P P 10,000 50,000 130,000 150,000 B

Answer: 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. b. c. d. P P P P 300,000 350,000 230,000 375,000 B

Answer: Solution:

Sales Less: Gross Margin Cost of Goods Sold Add: Finished Goods, end Less: Finished Goods, beginning Cost of Goods Manufactured

P 700,000 (325,000) P 375,000 35,000 (65,000) 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. b. c. d. P P P P 24,000 25,000 49,000 60,000 B

Answer: Solution:

Manufacturing Costs Less: Prime Cost (P 36,000 / 60%) Factory overhead

P 85,000 (60,000) 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. b. c. d. Answer: Solution: Direct materials Direct labor Factory overhead Total Manufacturing Costs Work in process (increase) Cost of goods Manufactured Finished Goods (decrease) Cost of Goods Sold P 100,000 150,000 200,000 450,000 (15,000) 435,000 10,000 P 445,000 B P P P P 435,000 445,000 465,000 475,000

During the month of March, 2011, Nape Co. used P 300,000 of direct materials. At March 31, 2011, Napes direct materials inventory was P 50,000 more than it was at March 1, 2011. 20. amounted to: a. b. c. d. Answer: Solution: Direct materials, beginning Add: Direct materials, End Direct Material Purchases P 300,000 50,000 P 350,000 D P P P P 0 250,000 300,000 350,000 Direct material purchases during the month of March 2011

21. Calculate the manufacturing overhead incurred for F&B Co. Direct labor cost incurred Direct materials used Beginning work in process Ending work in process Finished goods completed a. b. c. d. P P P P 60 410 560 580 A P 250 110 50 300 170

Answer: Solution:

Direct labor cost incurred Direct Materials Used Factory Overhead Total manufacturing cost Add: Work in process, beg. Cost of Goods put into process Less: Work In Process, end *Finished goods Completed

250 110 60 SQUEEZE 420 50 470 300 170

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

22. Determine the sales for the year. Gross profit Ending inventory Goods available for sale a. b. c. d. P P P P 300,000 340,000 400,000 460,000 B P 280,000 120,000 180,000

Answer: Solution:

Goods Available for Sale Less: Inventory,end Cost of Goods Sold Add: Gross Profit Sales

180,000 120,000 60,000 280,000 340,000

*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 Finished goods ending Cost of goods manufactured 23. What is the cost of goods sold? a. b. c. d. e. P P P P P 115,500 138,500 153,000 190,500 116,000 E P 26,000 37,000 127,000

Answer: Solution:

Cost of Goods Manufactured Add: Finished Goods, beg. Total Goods Available for Sale Less: Finished Goods, end Cost of Goods Sold

127,000 26,000 153,000 37,000 116,000

* 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 Direct materials used Actual factory overhead Applied factory overhead Cost of goods manufactured Total manufacturing costs 24. Uniflo Companys direct labor cost for the year is a. b. c. d. P P P P 12,000 60,000 36,000 48,000 B P 40,000 24,000 48,000 36,000 44,000 120,000

Answer: Solution:

Direct Materials used Factory Overhead Applied Direct Labor Total Manufacturing Cost

24,000 36,000 (60,000) SQUEEZE 120,000

*Factory overhead applied is used in determining the total manufacturing cost and not the actual overhead. 25. Uniflo Companys work in process inventory, December 31 is a. b. c. d. P P P P 116,000 80,000 76,000 36,000 A

Answer: Solution:

Total Manufacturing Cost Work in process, beg Cost of goods put into process Less: Work in process, end Cost of Goods Manufactured

120,000 40,000 160,000 116,000 SQUEEZE 44,000

The following data relate to Maxine Manufacturing Company for the period: Direct labor Factory overhead Work in process inventory, beginning Work in process inventory, end Cost of goods manufactured Sales Finished goods inventory, beginning Finished goods inventory, end Total selling, general, and administrative costs P 2,400 1,700 11,000 5,000 16,000 50,000 9,000 8,000 14,000

26. The amount of direct materials put into production during the period a. b. c. d. P P P P 6,700 5,600 4,800 5,900 D

Answer: Solution:

Direct materials Direct Labor Factory overhead Total Manufacturing Cost Work in process, beg Cost of goods put into process Less: Work in process, end Cost of goods manufactured Add: Finished goods, beg Total goods available for sale Less: Finished goods, end Cost of goods sold

5,900 SQUEEZE 2,400 1,700 10,000 11,000 21,000 5,000 16,000 9,000 25.000 8,000 17,000

27. The amount of increase in retained earnings during the period a. b. c. d. P P P P 14,000 33,000 25,000 19,000 D

Answer:

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 Raw materials inventory, January 1 Work in process inventory, December 31 Raw materials inventory, December 31 Raw materials purchased Direct labor Factory overhead applied Factory overhead control 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: Solution: Materials Used: Raw Materials, beg Add: Purchases Total Available for use Less: Materials, end Direct Labor Factory Overhead Applied Total Manufacturing Cost Add: Work in process, beg. Cost of goods put into process Less: Work in process, end. Cost of goods manufactured 50,000 160,000 210,000 80,000 B 180,000 50,000 150,000 80,000 160,000 150,000 100,000 120,000

130,000 150,000 100,000 380,000 180,000 560,000 150,000 410,000

* 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: Solution: Cost of goods manufactured Add: Finished goods, beg. Total goods available for sale Less: Finished goods, end Cost of goods sold 258,000 126,000 384,000 132,000 252,000 A

30. Total manufacturing costs for Alabama Corporation a. P 278,000 b. P 368,000 c. P 298,000 d. P 238,000 Answer: Solution: Cost of goods manufactured Work in process, end Less: Work in process, beg. Total manufacturing cost 258,000 110,000 90,000 278,000 A

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? a. b. c. d. Freight-cost Yes Yes No No A Purchase discounts not taken No Yes Yes No

Answer: 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? a. b. c. d. Answer: Periodic Yes Yes No No B Perpetual Yes No Yes No

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: January 10 18 28 Units 200 250 100 Unit Cost 22.00 23.00 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 Companys Job 301 for the manufacture of 2,200 coats was completed during August 2009 at the following unit costs: Direct Materials Direct Labor Factory Overhead (includes an allowance of P1.00 spoiled work) P 20.00 18.00 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:

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) Materials Payroll Factory Overhead Spoiled Goods Factory Overhead Work in Process 123,200 44,000 39,600 39,600 6,000 5,200 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) Materials Payroll Factory Overhead Spoiled Goods Work in Process 6,000 6,000 121,000 44,000 39,600 37,400

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 Other debits to the materials account during the year Increase of ending over beginning inventory 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: Solution: Beginning Inventory Add: Purchases Total materials available for production Less: Ending Inventory Cost of Materials issued to production * Ending Inventory Material Balance Add: Increase of ending over beginning inventory Ending Inventory P 275,000 825,000 P 1,100,000 330,000* P 770,000 P 275,000 55,000 P 330,000 B P 275,000 825,000 55,000

Job 75 incurred the following costs for the manufacture of 200 units of motors: Original cost accumulation Direct materials Direct labor Factory overhead (150% of direct labor) Direct costs of reworked 10 units Direct materials Direct labor 2,000 3,200 P 13,200 16,000 24,000

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: Work in Process Materials Payroll Factory Overhead Work in Process Materials Payroll Factory Overhead Finished Goods Work in Process 53,200 13,200 16,000 24,000 10,000 2,000 3,200 4,800 63,200

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 11 Received 100 units at P8 13 Issued 400 units 15 Received 200 units at P6 22 Issued 250 units 27 Returned from factory 50 units 30 Received 300 units at P9 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: Solution: April

C No. of units 100 units 100 units 200 units 300 units 700 units Cost per unit x P7 x 8 x 6 x 9 Total Cost 700 800 1,200 2,700 5,400

5 Received 11 Received 15 Received 30 Received Cost of materials purchases

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: 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 B

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: Solution: EOQ = = 2(18)(20,000)/2 600 units A

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: Solution: EOQ = = 2(12.50) (40,000)/16.00 250 units A

13. What are Justine's total ordering costs per year and total carrying costs per year at the economic order quantity? a. b. c. d. Ordering Cost P 1,562.50 1,562.50 2,000.00 2,000.00 C Carrying Cost. P 1,562.50 2,560.50 2,000.00 4,000.00

Answer: 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 Rams economic production run size? a. 83 cases b. 85 cases c. 120 cases d. 150 cases Answer: Solution: Economic Production Run Size = 2 (Annual Demand) (Setup Cost) / Carrying Cost = 2(5000) (3.60) / 2.5 = 120 C

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. b. c. d. P P P P 1.04 1.94 2.00 2.08 D

Answer: Solution:

Beginning Sept. 8 Sept. 20 Sales

400 @ 1.80 600 @ 2.10 250 @ 2.08 1250 @ 4.00

= = = =

720 1,260 520 (520/250 = 2.08) 2,500

The following information pertains to Material X used by Nikki Company Annual usage in units Working days per year Safety stock in units Normal lead time in working units 20,000 250 800 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: Solution: Reorder Point = = = 3200 units The following information relates to PRTC Company Units required per year Cost of placing an order Carrying cost per unit per year 60,000 P 900 P 1,200 D

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: Solution: B

EOQ

= = 300 units During March, Mark Company incurred the following costs on Job 209 for the 200 motors Original cost accumulation Direct materials Direct labor Factory overhead Direct costs of reworking 10 units: Direct materials Direct labor P 660 800 1,200 P2,660

P 100 160 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: Solution: FOH rate = Factory Overhead = 160 x 1.5 = 240 Original cost accumulation Direct Materials P 660 Direct Labor 800 Factory overhead 1,200 Add: Direct costs or reworking 10 units: Direct Materials 100 Direct Labor 160 Factory overhead 240 Total B

P 2,660

500 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 P 2,660 200 motors P 13.30

Solution: Original Cost Divide by Cost per finished unit of Job 209 using Method B

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 Direct labor Factory overhead Total P 100 80 120 300

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: Work in Process Materials Payroll Factory Overhead 330,000 110,000 88,000 132,000

Spoiled Goods Work in Process Work in Process Materials, Payroll, FOH

15,000 15,000 15,000 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 Companys materials Y Working days per year Normal lead time in working days Maximum lead time in working days 240 20 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 a. b. c. d. 600 600 750 750 Order Point 600 1,350 600 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. UFCs 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: Solution: EOQ = C

EOQ = EOQ = 6,326 units No. of production runs= = = 16 The following information is about a companys inventory costs Total cost to place one order Total cost to carry one unit Economic order quantity P 50 P4 7,000 units

23. What is the companys estimated annual usage? a. 1,000,000 units b. 1,960,000 units c. 1,400,000 units d. 2,000,000 units Answer: Solution: EOQ = B

R = 1,960,000 units 24. How many orders will be placed? a. 143 b. 200 c. 280

d. 286 Answer: 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. Normans 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. b. c. d. P 750 P1,200 P2,250 P2,700 D C

Answer: Solution:

Total annual inventory cost 26. What is the economic quantity order? a. b. c. d. 1,342 1,643 2,324 3,000 units units units units C

= 3,000 x 90% = P 2,700

Answer: Solution: EOQ

= = = 2,324 units

27. How many times would Norman have to place an order in one year?

a. b. c. d.

67 55 39 30

times times times times C

Answer: 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. b. c. d. 900 units remaining 600 units remaining 300 units remaining 0 units remaining in B in stock in stock in stock stock

Answer: 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: Solution: D

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 Direct Labor Factory Overhead (applied @ 150% of DLC) P 5.00 4.00 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 a. b. c. d. P P P P 200 200 500 500 Account charged Work In Process Factory Overhead Control Work In Process Factory Overhead Control

Answer: D Solution/Entry: Factory Overhead Control Payroll (2*100) Factory overhead applied (200*150%) 500 200 300