1

CHAPTER 8
Answers to Multiple Choice Theoretical
1.
2.
3.
4.
5.

a
d
a
c
a

6.
7.
8.
9.
10.

b
c
c
a
a

Solutions to Multiple Choice Computational

1.

(b)
Product AB:
Product CD:

2.

1,600/100,000 x P860,000 = P13,760

200/100,000 x P860,000 = P 1,720

(c)
Product AB
Direct labor hours:
AB:
1,600/100,000 x P520,000 =
CD:
200/100,000 x P520,000 =
No. of Batches:
AB:
4/500 x P280,000 =
CD:
12/500 x P280,000 =
Engineering/design changes:
AB:
2/120 x P60,000 =
CD:
24/120 x P60,000 =
Totals

3.

Product CD

P 8,320
P 1,040
2,240
6,720
1,000
P11,560

12,000
P19,760

(c)
Traditional costing:
Total hours per batch: 5,000DLH / 2,000 Volume x 100 batch size = 250 DLH
Setup cost per hour: P1,000/250 DLH = P4
Setup cost per unit: P4 x 2.5 = P10
ABC:
1,000 Set up cost per batch / 100 batch = P10

4.

(c)
Traditional Costing System:
Direct materials
Direct labor (820 x P18)
Applied factory overhead (P14,760 x 300%)
Total factory cost

P 55,500
14,760
44,280
P114,540

Unit cost (P114,540 / 150 units)

P 763.60

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Number 4 (continued)
Activity-Based Costing System:
Direct materials
Direct labor
Applied factory overhead:
Engineering design (P30 x 330)
Machine setup (P200 x 22)
Machining (P25 x 732)
Assembly (P8 x 1,450)
Packaging and shipping (P15 x 152)
Building occupancy (P6 x 732)
Total factory cost
Unit cost (P121,132 / 150 units)
5.

P 55,500
14,760
P

(c)
Traditional Costing:
Direct materials
Direct labor
Applied overhead:
Machine hours
Predetermined overhead rate (P1,800,000/30,000)
Applied overhead
Divided by batch size
Unit cost

9,900
4,400
18,300
11,600
2,280
4,392

50,872
P121,132
P 807.55

P4.40
0.75
x

80
P 60
P4,800
5,000

0.96
P6.11

ABC
Direct materials
P4.40
Direct labor
0.75
Applied overhead:
Materials handling: (P720,000 / 6,000,000) x 5 =
P0.60
Setup cost: (P315,000 / 750) x 2 = P840 / 5,000 =
0.168
Machining cost: (P540,000/30,000)x80 =P1,440/5,000 = 0.288
Quality control: (P225,000/500) = P450/5,000 =
0.09
1.146
Unit cost
P6.296
6.

(b)
Product A-1
Materials
P 20
Labor
200
Applied overhead:
Machine setup (P140,000/350 = P400)
A-1: P400/100 units
4
B-3:
P400/2 units
Testing (P190,000/4,750) = P40
A-1: P40 x 0.20 hours =
8
B-3:
P40 x 5.5 hours =
Related to labor:
A-1: 10x10,000 = 100,000 hrs.
B-3:
20x 500 = 10,000
Total
110,000 hrs
A-1: (100/110 xP330,000) 10,000
30
B-3:
(10 /110 x P330,000) 5,000
Unit cost
P262

Product B-3
P 45
400

200
220

60
P925

3
7.

(a)
Price costs
Overhead: (P500,000+P850,000+P650,000)=P2,000,000
RR: 100,000/125,000 x P2,000,000
SS: 25,000/125,000 x P2,000,000
Total factory cost
Divided by quantity
Unit cost:

8.

10.

1,600,000
400,000
P2,400,000 P500,000
400,000 100,000
P
6.00 P 5.50

(b)
Prime cost
Overhead:
Cost of operating equipment:
RR: 100/125 x P500,000
SS: 25/125 x P500,000
Material handling:
RR: 100/125 x P850,000
SS:
25/125 x P850,000
Setups:
RR: 100/125 x P650,000
SS:
15/125 x P650,000
Factory cost
Quantity
Unit cost

9.

Product RR Product SS
P 800,000 P150,000

Product RR
P 800,000

Product SS
P 150,000

400,000
100,000
566,667
283,333
433,333
P2,200,000
400,000
P
5.50

216,667
P 750,000
100,000
P
7.50

(c)
Direct cost
Overhead:
Utilities: P600,000/P30,000 x 15,000 =
Setups: P546,000 / 390 x 65 =
Material handling: P1,280,000/800,000 x 250,000 =
Factory cost

P 40,000

Unit cost: P831,000 / 20,000 units =

300,000
91,000
400,000
P 831,000
41.55

(a)
Direct Cost
Overhead: P2,426,000 / 50,000 x 9,000 =
Total factory cost
Divided by units produced
Unit cost

P 40,000
436,680
P476,680
10,000
P 47.67

Selling price per unit (P47.67 x 120%)

57.20

4
11.

(d)
Traditional costing (P27,500 x 14.5%)
Activity-based Costing:
Material inspection: P11.50 x 12 =
P 138
In process inspection: P0.14 x 17,500 = 2,450
Product cert.: P77 x 25
1,925
Excess of ABC over traditional costing

12.

P3,987.50

4,513.00
P 525.50

(a)
Product LL
P100,000
( 60,000)
( 46,500)
P (6,500)

Product MM
P300,000
(100,000)
(133,500)
P 66,500

Product LL
Maintenance:
LL: P75,000 / 25,000 x 5,000 =
P15,000
MM: P75,000 / 25,000 x 20,000 =
Product delivery:
LL: P45,000 / 5,000 x 1,000 =
9,000
MM: P45,000 / 5,000 x 4,000 =
Supervision:
LL: P60,000 / P160,000 x P60,000 =
22,500
MM: P60,000 / P160,000 x P100,000 =
Total overhead
P46,500

Product MM

Revenues
Direct labor
Overhead (Schedule 1)
Income (loss)
Schedule 1:

13.

P 60,000
36,000
37,500
P133,500

(d)
Vacuum
Cleaners
P6,500,000

Revenue
Manufacturing cost:
Direct materials
1,000,000
Direct labor
600,000
Overhead : P1,105,000/130,000 = P8.50
VC: 30,000 x P8.50
255,000
FP: 100,000 x P8.50
Total
1,855,000
Gross profit
P4,645,000
Divided by units sold
10,000
Gross profit per unit
P 465.50

Floor
Polishers
P5,950,000
900,000
2,000,000
850,000
3,750,000
P2,200,000

1,000
P
2,200

5
14.

(b)
Revenue
Manufacturing cost:
Direct materials
Direct labor
Overhead:
VC: P650,000 /130,000 x 30,000 =
FP: P455,500 / 50,000 x 35,000 =
Total
Gross profit
Divided by units sold
Gross profit per unit

Vacuum
Cleaners
P6,500,000

Floor
Polishers
P5,950,000

1,000,000
600,000

900,000
2,000,000

150,000
1,750,000
P4,750,000
10,000
P
475

318,850
3,218,850
P2,731,150

1,000
P
2,731.15

Solution to Problems
Problem 8-1
1.

2.

Machine related: P125,000 / 10,000 =

P12.50

Others: P295,000 / 25,000 =

P11.80

Machine setup: P50,000 / 1,000 =

P50

Material handling: P45,000 / 1,000 =

P45

Other material related: P60,000 / 1,200 =

P50

Machine operation: P75,000 / 10,000 =

P7.50

Other overhead: P190,000 / 25,000 =

P7.60

Problem 8-2
1.
Direct materials
Direct labor
Overhead:
KK: P1,500,000/50,000 x 3,000 =
GG: P1,500,000/50,000 x 47,000 =
Factory cost
Divided by units produced
Unit cost
2.
Direct materials
Direct labor
Overhead:
Setup related :
KK: P250,000/200 x 120 =
GG: P250,000/200 x 80 =
Design related:
KK: P350,000/10,000 x 6,000 =
GG: P350,000/10,000 x 4,000 =
Other:
KK: P900,000/50,000 x 3,000 =
GG: P900,000/50,000 X 47,000 =
Factory cost
Divided by units produced
Unit cost

Product KK
P100,000
50,000

Product GG
P 310,000
350,000

90,000
P240,000

500
P
480
Product KK
P100,000
50,000

1,410,000
P2,070,000
15,500
P 133.55
Product GG
P 310,000
350,000

150,000
100,000
210,000
140,000
54,000
P564,000

500
P 1,128

846,000
P1,746,000
15,500
P 112.65

7
Problem 8-3
1.

Multimedia
Keyboards
Materials handling:
MK: (5% x P12,000)
CTK: (5% x P15,400)
Machine setup:
MK: (P160 x 45)
CTK: (P160 x 25)
Assembly:
MK: (P12 x 400)
CTK: (P12 x 700)
Inspection:
MK: (P5 x 400)
CTK: (P5 x 700)
Packaging and shipping:
MK: (10 x 9)
CTK: (10 x 16)
Total overhead costs

2.

Multimedia Keyboard: P14,690 /400 =

Comfort Type Keyboard: P16,830 / 700 =

Comfort Type
Keyboards

600
P

770

7,200
4,000
4,800
8,400
2,000
3,500
90
P14,690

160
P16,830

P36.73
P24.04

Problem 8-4
(a)

Material handling: (P30,000 / 1,000)

Machine setups: (P27,000 / 450)
Quality inspection: (P24,000 / 600)

(b)

P30 per no. of requisition

P60 per setup
P40 per no. of inspection
Product SS

Materials handling:
SS: (P30 x 400)
HH: (P30 x 600)
Machine setups:
SS: (P60 x 150)
HH: (P60 x 300)
Quality inspection:
SS: (P40 x 200)
HH: (P40 x 400)
Total overhead costs

Product HH

P12,000
P18,000
9,000
18,000
8,000
P29,000

16,000
P52,000

Problem 8-5
1.

2.

Overhead rate: P280,000 / P100,000 = 280%

Job 1001: (P2,000 x 280%)

P5,600

Job 2002:
Direct materials
Direct labor
Overhead: (P2,000 x 280%)
Total cost
Unit cost (P19,600 / 50)

P12,000
2,000
5,600
P19,600
P392

Job 3003:
Direct materials
Direct labor
Overhead: (P4,000 x 280%)
Total cost
Sales price: (P23,200 x 150%)

P 8,000
4,000
11,200
P23,200
P34,800

Job 1001:
Machine setup: (P20,000 / 200) = P100 x 8
Inspection: (P130,000 / 6,500) = P20 x 22
Material handling: (P80,000 / 8,000) = P10 x 30
Engineering: (P50,000 x 1,000) = P50 x 25
Total overhead cost
Job 2002:
Direct materials
Direct labor
Overhead:
Machine setup: (P100 x 10)
Inspection: (P20 x 15)
Material handling: (P10 x 40)
Engineering: (P50 x 50)
Total cost
Unit cost: (P18,200 / 50)
Job 3003:
Direct materials
Direct labor
Overhead:
Machine setup: (P100 x 14)
Inspection: (P20 x 30)
Material handling: (P50 x 50)
Engineering: (P50 x 15)
Total cost
Sales price: (P17,250 x 150%)

=
=
=
=

P 100
400
300
1,250
P2,050
P12,000
2,000

P 1,000
300
400
2,500

4,200
P18,200
P0.02
P 8,000
4,000

P1,400
600
2,500
750

5,250
P17,250
P25,875

9
Problem 8-6
a.

Send/receive goods: P25,000 / 500,000 = P0.05 per kilo

Store goods: P8,000 / 80,000 = P.10 per cubic foot
Move goods: P10,000 / 5,000 = P2.00 per square foot
Identify goods: P4,000 / 500 = P8.00 per package
Anson:
Send/receive goods:
Store goods:
Move goods:
Identify goods:
Total cost

(40,000 x P0.05)
(3,000 x P0.10)
(300 x P2)
(5 x P8)

P2,000
300
600
40
P2,940

Basco:
Send/receive goods:
Store goods:
Move goods:
Identify goods:
Total

(40,000 x P0.05)
( 2,000 x P0.10)
( 200 x P2)
(
20 x P8)

P2,000
200
400
160
P2,760

Casio:
Send/receive goods:
Store goods:
Move goods:
Identify goods:
Total

(40,000 x P0.05)
( 1,000 x P0.10)
( 1,000 x P2)
(
80 x P8)

P2,000
100
2,000
640
P4,740

b.

Anson: 40,000 x P0.08 =

Basco: 40,000 x P0.08 =
Casio: 40,000 x P0.08 =

P3,200
P3,200
P3,200

c.

Anson: P2,940 x 130% =

Basco: P2,760 x 130% =
Casio: P4,740 x 130% =

P3,822
P3,588
P6,162

d.

The current pricing plan captures only one dimension of cost causality, send/receive
goods. Accordingly, the prices charged for warehousing services are almost
independent of the causes of the costs. As indicated in a comparison of the answers
to parts (b) and (c), the existing pricing plan generates the same price for the three
customers whereas an ABC-based price results in very different prices to be charged
to the three customers.

10
Problem 8-7
1.

Job 456
P19,400
1,500

Direct materials
Direct labor
Manufacturing overhead:
Job 456: P230 x P50
Job 789: P230 x P750
Total manufacturing costs
Divided number of units
Manufacturing cost per unit

11,500

2.
Direct materials
Direct labor
Manufacturing overhead:
Materials handling:
P0.80 x 1,000; P0.80 x 4,000
Lathe work:
P0.40 x 40,000; P0.40 x 120,000
Milling:
P40 x 300; P40 x 2,100
Grinding:
P1.60 x 1,000; P1.60 x 4,000
Testing:
P30 x 20; P30 x 400
Total manufacturing cost
Number of units
Unit manufacturing cost
3.

Job 789
P119,800
22,500

P32,400

20
P 1,620

172,500
P314,800

400
P
787

Job 456
P19,400
1,500

Job 789
P119,800
22,500

800

3,200

16,000

48,000

12,000

84,000

1,600

6,400

600
P51,900

20
P 2,595

12,000
P295,900

400
P 739.75

The product cost figures computed in requirement 1 and 2 differ because:

a.
b.

the job orders differ in the way the use each of five activity areas, and
the activity areas differ in their indirect cost allocation bases 9specifically,
each area does not use the direct manufacturing labor-hours indirect cost
allocation base).

Problem 8-8
a.

Umbrellas:
Gazebos:
Tents:

P16 / P20 = 80% of an hour; .80 x 60 minutes = 48 minutes

P120 / P20 = 6 DLHs
P40 / P10 = 2 DLHs

b.

Umbrellas:
(P16 x 200,000)
Gazebos:
(P120 x 20,000)
Tents:
(P40 x 60,000)
Total overhead cost

c.

Allocation rates:
Quality control: P400,000 / 280,000 = P1.43 per unit (rounded)
Setups: P400,000 / 2,000 = P200 per setup
Material handling: P1,200,000 / 4,000,000 = P0.30 per kilo
Equipment operation: P6,000,000 / 2,000,000 = P3.00 per MH

P3,200,000
2,400,000
2,400,000
P8,000,000

11
Problem 8-8 (continued)
Overhead Cost Allocation:
Umbrellas
Quality control:
P1.43 x 200,000
P1.43 x 20,000
P1.43 x 60,000
Setups:
P200 x 400
P200 x 800
P200 x 800
Material handling:
P0.30 x 800,000
P0.30 x 2,000,000
P0.30 x 1,200,000
Equipment operation:
P3.00 x 400,000
P3.00 x 800,000
P3.00 x 800,000
Total overhead
Number of units
Overhead cost per unit

Tents

P 286,000
P

28,600
P

85,800

80,000
160,000
160,000
240,000
600,000
360,000
1,200,000
2,400,000
P1,806,000
200,000
P
9.03

P3,188,600
20,000
P 159.43

2,400,000
P3,005,800
60,000
P
50.10

P 8.00
12.00
9.03
P29.03

P 80.00
90.00
159.43
P329.43

P 8.00
30.00
50.10
P88.10

Total cost per unit:

Direct materials
Direct labor
Overhead
Total
d.

Gazebos

If prices are set based on product costs, activity-based costing would generate lower
prices for umbrellas and higher prices for the other two products.

Problem 8-9
1a.

Budgeted manufacturing overhead rate =

Budgeted manufacturing overhead

Budgeted direct labor cost

P3,000,000
P600,000
P5 per direct labor cost

=
1b.
Direct materials
Direct labor
Manufacturing overhead (0.60 x P5.00)
Total costs
Budgeted selling prices per kilo:
Mauna Loa (P12.00 x 130%) =
African (P10 x 130%)
=

Mauna Loa
P 8.40
0.60
3.00
P12.00
P15.60
P13.00

African
P 6.40
0.60
3.00
P10.00

12
Problem 8-9 (continued)
2.

Total budgeted unit costs per kilo are:

Direct materials
Direct labor
Manufacturing overhead:
Purchase orders:
MLC: ( 4 x P1,000 100,000)
AC:
( 4 x P1,000 2,000)
Material handling:
MLC: (30 x P800 100,000)
AC:
(12 x P800 2,000)
Quality control:
MLC: (10 x P480 100,000)
AC:
(4 x P480 2,000)
Roasting:
MLC: (1,000 x P20 100,000)
AC:
(20 x P20 2.000)
Blending:
MLC: (500 x P20 100,000)
AC:
(10 x P20 2,000)
Packaging:
MLC: (100 x P20 100,000)
AC:
(2 x P20 2,000)
Total cost per unit

Mauna Loa
P 8.40
0.60

African Coffee
P 6.40
0.60

0.04
2.00
0.24
4.80
0.04
0.96
0.20
0.20
0.10
0.10
0.02
P 9.64

0.02
P15.08

Problem 8-10
(a)

Purchasing:
Processing:
Packaging:
Testing:
Storage:
Washing:

(P240,000 / 1,500)
(P1,400,000 / 1,000,000)
(P580,000 / 400,000)
(P240,000 / 4,000)
(P180,000 /18,000)
(P560,000 / 800)

(b)
Purchasing:
(P160 x 800) ; (P160 x 700)
Processing:
(P1.40 x 400,000; (P1.40 x 600,000)
Packaging:
(P1.45 x 180,000); (P1.45 x 220,000)
Testing:
(P60 x 2,100); (P60 x 1,900)
Storage:
(P10 x 10,400); (P10 x 7,600)
Washing:
(P700 x 350); (P700 x 450)
Total overhead cost
(c)

P160 per order

P1.40 per liter
P1.45 per container
P60 per test
P10 per liter
P700 per batch
Paint XX

Paint YY

P 128,000

P 112,000

560,000

840,000

261,000

319,000

126,000

114,000

104,000

76,000

245,000
P1,424,000

315,000
P1,776,000

Unit overhead cost: Paint XX (P1,424,000 / 180,000 container =

Paint YY (P1,776,000 / 220,000 container =

P7.91
P8.07