USJR – JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

ACADEMICS ARM – QUIZBOWLER’S SOCIETY

COST ACCOUNTING REVIEWER

JOB ORDER COSTING

ACTIVITY BASED COSTING PROCESS COSTING SYSTEM

1. Statement I: If monthly financial statements are prepared, underapplied overhead is

shown as a prepaid expense on the balance sheet.

Statement II: Overapplied overhead means that actual manufacturing overhead costs
were greater than the manufacturing overhead costs applied to jobs.

Statement III: Total manufacturing costs for a period consists of the costs of
direct material used, the cost of direct labor incurred, and the manufacturing
overhead applied during the period.

a. Only two statements are true

b. Only one statement is true
c. All statements are true
d. None of the above

2. Statement I: When goods are sold, the Cost of Goods Sold account is debited and the
Work in Process Inventory account is credited.

Statement II: A good system of internal control requires that the job order cost
sheet be destroyed as soon as the job is complete.

Statement III: In a process costing system, direct labor cost combined with
manufacturing overhead cost is known as conversion cost.

a. Only two statements are true

b. Only one statement is true
c. All statements are true
d. None of the above

3. Which of the following is NOT a sign of poor cost data?

a. Competitors’ prices for high-volume products appear much too high.
b. The company seems to have a highly profitably niche all to itself.
c. Customers don’t balk at price increases for low-volume products.
d. Competitors’ prices for low-volume products appear much too high.

4. Activity-based costing and generally accepted accounting principles differ in that

ABC
a. does not define product costs in the same manner as GAAP.
b. cannot be used to compute an income statement, but GAAP can.
c. is concerned only with costs generated from automated processes, but GAAP is
concerned with costs generated from both manual and automated processes.
d. information is useful only to managers, while GAAP information is useful to
all organizational stakeholders.

5. In determining total manufacturing costs on the cost of goods manufactured

schedule,
a. beginning work in process inventory should have a zero balance.
b. actual manufacturing overhead costs appear as a deduction.
c. manufacturing overhead applied is added to direct materials and direct labor.
d. ending work in process inventory is deducted from beginning work in process
inventory.

6. What is the normal effect on the numbers of cost pools and allocation bases when an
activity-based cost (ABC) system replaces a traditional cost system?
a. b. c. d.
Cost Pools No effect Increase No effect Increase
Allocation No effect No effect Increase Increase
Bases

7. Book Co. uses the activity-based costing approach for cost allocation and product
costing purposes. Printing, cutting, and binding functions make up the
manufacturing process. Machinery and equipment are arranged in operating cells
that produce a complete product starting with raw materials. Which of the
following are characteristic of Boo’s activity-based costing approach?
I. Cost drivers are used as a basis for cost allocation.
COST ACCOUNTING MOCK DEPARTMENTALS|1
 II. Costs are accumulated by department or function for purposes of product
costing.
III. Activities that do not add value to the product are identified and reduced to
the extent possible.
a. I only. b. I and II. c. I and III. d. II and III.

8. Malcolm Company uses a weighted-average process costing system. All materials at

Malcolm are added at the beginning of the production process. The equivalent units
for materials at Malcolm would be the sum of:
A) units in ending work in process and the units started.
B) units in beginning work in process and the units started.
C) units in ending work in process and the units started and completed.
D) units in beginning work in process and the units started and completed.

9. New Rage Cosmetics has used a traditional cost accounting system to apply quality
control costs uniformly to all products at a rate of 14.5% of direct labor cost.
Monthly direct labor cost for Satin Sheen makeup is P27,500. In an attempt to
distribute quality control costs more equitably, New Rage is considering activity-
based costing. The monthly data shown in the chart below have been gathered for
Satin Sheen.
Quantity for
Activity Cost Driver Cost Rates Satin Sheen
Incoming material inspection Type of material P11.50 per type 12 types

In-process inspection Number of units P0.14 per unit 17,500 units

Product certification Per order P77per order 25 orders

The monthly quality control cost assigned to Satin Sheen makeup using activity-
based costing is
a. P88.64 per order.
b. P525.50 lower than the cost using the traditional system.
c. P8,500.50
d. P525.50 higher than the cost using the traditional system.

From nos. 10 to 14 refer to this number

Job cost sheets for Howard Manufacturing are as follows:

Job No 210 Quantity 1,500

Manufacturing
Date Direct Materials Direct Labor Overhead
July 1 7,000 8,000 12,000
8 7,800
10 10,000
15 6,500
25 15,000

Job No 211 Quantity 1,200

Manufacturing
Date Direct Materials Direct Labor Overhead
July 1 4,000 6,000 9,000
10 9,000
15 8,000
20 7,000
27 12,000

10. What was the balance in Work in Process Inventory on July 1 if these were the
only unfinished jobs?
a. P 91 000
b. P 46 000
c. P 41 050
d. P 95 000

11. What was the predetermined overhead rate in June if overhead was applied on
the basis of direct labor cost?
a. 105% of direct labor cost
b. 160% of direct labor cost
c. 150% of direct labor cost
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 d. 115% of direct labor cost

12. If July is the start of a new fiscal year and the overhead rate is 20% higher
than in the preceding year, how much overhead should be applied to Job 210 in July?
a. P 46 000
b. P 45 000
c. P 55 000
d. P 56 000

13. Assuming Job 210 is complete, what is the total and unit cost of the job?
a. P 111 200 ; P 74/unit
b. P 111 300 ; P 73/unit
c. P 111 300 ; P 74.2/unit
d. P 111 300 ; P 74.3/unit

14. Assuming Job 211 is the only unfinished job at July 31, what is the balance
in Work in Process Inventory on this date?
a. P 91 000
b. P 92 000
c. P 92 000
d. P 90 000

From nos. 15 to 20 refer to this number

Two products are produced by Special Products: A and B. Each product has an area in the
plant that is dedicated to its production. The plant has two manufacturing processes,
process A and process B. Other processes include engineering, product handling and
procurement. The product relational table for Special is as follows:
Activity Usage
Activity Driver # Name Product A Product B
1 Units 200,000 25,000
2 Purchase orders 250 125
3 Machine hours 80,000 10,000
4 Engineering hours 1,250 1,500
15. How much overhead cost will be assigned to product A using the number of
purchase orders?
a. P50,000 b. P25,000 c. P40,000,000 d. P66,750

16. How much overhead cost will be assigned to product B using engineering hours?
a. P50,000 b. P60,000 c. P1,000,000 d. P400,500

17. How much overhead cost will be assigned to product A using process A?
a. P1,200,000 b. P2,400,000 c. P960,000 d. P120,000

18. How much overhead cost will be assigned to product B using process B?
a. P1,200,000 b. P960,000 c. P120,000 d. P150,000

19. What is the unit cost of Product A?

a. P4.71 b. P3.76 c. P252.00 d. P5.30

20. What is the unit cost of Product B?

a. P9.40 b. P6.00 c. P252.00 d. P6.41

21. Jersey Company has a process costing system in which it uses the weighted-
average method. The equivalent units for conversion costs for the month were 47,500
units. The beginning work in process inventory consisted of 15,000 units, 60%
complete with respect to conversion costs. The ending work in process inventory
consisted of 10,000 units, 75% complete with respect to conversion costs. The
number of units started during the month was:
A) 25,000 units
B) 34,000 units
C) 35,000 units
D) 40,000 units

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 22. Pelican Corporation uses a weighted-average process costing system to collect
costs related to production. The following selected information relates to
production for March:

Units completed and transferred out.......... 5,000

Units in work in process, March 31........... 800
Equivalent units,
materials......................... 5,800
Equivalent units, conversion
costs............. 5,200

Materials Conversion
Costs in work in process on
March 1 .................... P 2,900 P 4,680
Costs added to production during
March.............. 71,050 131,040
Total
cost.........................................
...................... P73,950 P135,720

All materials at Pelican are added at the beginning of the production process. Conversion
costs are incurred uniformly over the production process. What total amount of cost
should be assigned to the units in work in process at the end of March?
A) P14,840
B) P15,420
C) P24,920
D) P25,860

Question 23 through 26 are based on the following information.

Alaire Corporation manufactures several different types of printed circuit boards:

however, two of the boards account for the majority of the company’s sales. The first of
these boards, a television (TV) circuit board, has been a standard in the industry for
several years. The market for this type of board is competitive and therefore price-
sensitive. Alaire plans to sell 65,000 of the TV boards in 1993 at a price of P150 per
unit. The second high-volume product, a persona computer (PC) circuit board, is a recent
addition to Alaire’s product line. Because the PC board incorporates the latest
technology, it can be sold at a premium price, plans include the sale of 40,000 PC boards
at P300 per unit.

Alaire’s management group is meeting to discuss strategies for 1993, and the current
topic of conversation is how to spend the sales and promotion dollars for next year. The
sales manager believe that the market share for the TV board could be expanded by
concentrating Alaire’s promotional efforts in this area. In response to this suggestion,
the production manager said, “Why don’t you go after a bigger market for the PV board?
The cost sheets that I get show a premium price for the PC board, selling it should help
overall profitability.”

Alaire uses a standard cost system, and the following data apply to the TV and PC boards.

TV Board PC Board
Direct materials P80 P140
Direct labor 1.5 hours 4.0 hours
Machine time 0.5 hours 1.5 hours
Variable factory overhead is applied on the basis of direct labor hours. For 1993,
variable factory is budgeted at P1,120,000, and direct labor hours are estimated at
280,000. The hourly rates for machine time and direct labor are P10 and P14,
respectively. Alaire applies a material handling charge at 10% of materials cost, thus
materials handling charge is not included in variable factory overhead. Total 1993
expenditures for materials are budgeted at P10,600,000.

Ed Watch, Alaire’s controller, believes that, the management group proceeds with the
discussion about allocating sales and promotional dollars to individual products, they
should consider the activities involved in the production. As Welch explained to the
group, “Activity-based costing integrates the cost of all activities, known as cost
drivers, into individual product costs rather than including these costs in overhead
pools.” Welch has prepared the schedule shown below to help the management group
understand this concept.

COST ACCOUNTING MOCK DEPARTMENTALS|4

“Using this information,” Welch explained, “we can calculate an activity-based cost for
each TV board and each PC board and then compare it to the standard cost we have bee
using. The only cost that remains the same for both cost methods is the cost of direct
materials. The cost drivers will replace the direct labor, machine time, and overhead
costs in the standard cost.”
Annual Activity
Budgeted Cost Cost Driver for Cost Driver
Materials overhead:
Procurement P400,000 No. of parts 4,000,000 parts
Production scheduling 220,000 No. of boards 110,000 boards

Packaging & shipping No. of boards 110,000 boards

440,000
P1,060,000

Variable overhead:
Machine setup P446,000 No. of setups 278,750 setups
Hazardous waste disposal 48,000 Lbs. of waste 16,000 lbs.

Quality control 560,000 No. of inspections 160,000 inspections

General supplies No. of boards 110,000 boards

66,000
P1,120,000

Manufacturing:
Machine insertion P1,200,000 No. of parts 3,000,000 parts

Manual insertion 4,000,000 No. of parts 1,000,000 parts

Wave soldering No. of boards 110,000 boards

132,000
P5,332,000

Required per unit TV Board PC Boards

Parts 25 55
Machine 24 35
insertions
Manual 1 20
insertions
Machine setups 2 3
Hazardous waste 0.02 lbs. 0.35 lbs.
Inspections 1 2

23. On the basis of standard costs, the total contribution budgeted for the TV
board is
a. P1,950,000 b. P2,275,000 c. P2,340,000 d. P2,470,000

24. On the basis of activity-based costs (ABC), the total contribution budgeted
for the TV board is
a. P1,594,000 b. P1,950,000 c. P2,037,100 d. P2,557,100

25. On the basis of standard costs, the total contribution budgeted for the PC
board is
a. P3,000,000 b. P2,960,000 c. P2,920,000 d. P2,360,000

26. On the basis of activity-based costs, the total contribution budgeted for the
PC board is
a. P1,594,000 b. P1,950,000 c. P2,360,000 d. P2,557,100

For nos. 27 to 30 refer to this question

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 to 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 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:

COST ACCOUNTING MOCK DEPARTMENTALS|5

 Estimated Expected Activity
Activity Cost Pool Overhead Costs Product A Product B Total
Activity 1 P14,487 500 600 1,100
Activity 2 P64,800 2,500 500 3,000
General Factory P12,736 240 100 340
Total P92,023
(Note: The General Factory activity cost pool's costs are allocated on the basis of
direct labor hours.)

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

28. 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.

29. The predetermined overhead rate (i.e., activity rate) for Activity 1 under
the activity-based costing system is closest to:
a. P28.97. b. P13.17. c. P83.66. d. P24.15.

30. 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.

For nos. 31 to 33 refer this question

Edwards Company applies manufacturing overhead to jobs on the basis of machine hours
used. Overhead costs are expected to total P900,000 for the year, and machine usage is
estimated at 200,000 hours.

In January, P93,000 of overhead costs are incurred and 22,000 machine hours are used. For
the remainder of the year, P974,000 of additional overhead costs are incurred and 214,000
additional machine hours are worked.

31. Compute the manufacturing overhead rate for the year.

a. P 4.5/machine hour
b. P 4.6/machine hour
c. P 4.7/machine hour
d. P 2.0/machine hours

32. What is the amount of over- or underapplied overhead at January 31? How
should this amount be reported in the financial statements prepared on January 31?
a. P 6 000
b. P 7 600
c. P 6 500
d. P 6 300

33. What is the amount of over- or underapplied overhead at December 31?

a. P 3 500
b. P 4 500
c. P 6 000
d. P 5 000

34. Underapplied overhead is

a. reported as unearned revenue in the balance sheet.
b. added to the Manufacturing Overhead account.
c. added to Cost of Goods Sold.
d. credited to Cost of Goods Sold.

35. Which of the following statements related to job-order costing and process
costing are true?
a. Under both costing methods, manufacturing overhead costs are included in the
computation of unit product costs.
b. Under both costing methods, the journal entry to record the completion of
production will involve crediting a work in process account.
c. Under both costing methods, the journal entry to record the cost of goods sold
will involve crediting the finished goods account.
d. All of the above are true.

36. Which of the following are needed to compute the cost per equivalent unit for
materials under the weighted-average method of process costing?

COST ACCOUNTING MOCK DEPARTMENTALS|6

 Material cost assigned to beginning Material cost added to production
work in process last period during the current period
A) Yes Yes
B) No Yes
C) Yes No
D) No No

37. If activity-based costing is implemented in an organization without any other

changes being effected, total overhead costs will
a. be reduced because of the elimination of non-value-added activities.
b. be reduced because organizational costs will not be assigned to products or
services.
c. be increased because of the need for additional people to gather information
on cost drivers and cost pools.
d. remain constant and simply be spread over products differently.

38. Products make diverse demands on resources because of differences in all of

the following EXCEPT
a. volume. b. selling price. c. batch size. d. complexity.

39. Unit-level cost drivers are most appropriate as an overhead assignment base
when
a. several complex products are manufactured.
b. only one product is manufactured.
c. direct labor costs are low.
d. factories produce a varied mix of products.

40. Symptoms of an outdated cost system include all of the following EXCEPT
a. product costs change because of changes in financial reporting.
b. products that are difficult to produce show little profit.
c. competitors’ prices appear unrealistically low.
d. the company has a highly profitable niche all to itself.

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