1

CHAPTER 8

Answers to Multiple Choice – Theoretical

1. a 6. b
2. d 7. c
3. a 8. c
4. c 9. a
5. a 10. a

Solutions to Multiple Choice – Computational

1. (b)

Product AB: 1,600/100,000 x P860,000 = P13,760

Product CD: 200/100,000 x P860,000 = P 1,720

2. (c)

Product AB Product CD
Direct labor hours:
AB: 1,600/100,000 x P520,000 = P 8,320
CD: 200/100,000 x P520,000 = P 1,040
No. of Batches:
AB: 4/500 x P280,000 = 2,240
CD: 12/500 x P280,000 = 6,720
Engineering/design changes:
AB: 2/120 x P60,000 = 1,000
CD: 24/120 x P60,000 = 12,000
Totals P11,560P19,760

3. (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 P 55,500
Direct labor (820 x P18) 14,760
Applied factory overhead (P14,760 x 300%) 44,280
Total factory cost P114,540

Unit cost (P114,540 / 150 units) P 763.60

 2

Number 4 (continued)
Activity-Based Costing System:
Direct materials P 55,500
Direct labor 14,760
Applied factory overhead:
Engineering design (P30 x 330) P 9,900
Machine setup (P200 x 22) 4,400
Machining (P25 x 732) 18,300
Assembly (P8 x 1,450) 11,600
Packaging and shipping (P15 x 152) 2,280
Building occupancy (P6 x 732) 4,392 50,872
Total factory cost P121,132
Unit cost (P121,132 / 150 units) P 807.55

5. (c)
Traditional Costing:
Direct materials P4.40
Direct labor 0.75
Applied overhead:
Machine hours 80
Predetermined overhead rate (P1,800,000/30,000) x P 60
Applied overhead P4,800
Divided by batch size ÷5,000 0.96
Unit cost 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 Product B-3
Materials P 20 P 45
Labor 200 400
Applied overhead:
Machine setup (P140,000/350 = P400)
A-1: P400/100 units 4
B-3: P400/2 units 200
Testing (P190,000/4,750) = P40
A-1: P40 x 0.20 hours = 8
B-3: P40 x 5.5 hours = 220
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 60
Unit cost P262 P925
 3

7. (a)
Product RR Product SS
Price costs P 800,000 P150,000
Overhead: (P500,000+P850,000+P650,000)=P2,000,000
RR: 100,000/125,000 x P2,000,000 1,600,000
SS: 25,000/125,000 x P2,000,000 400,000
Total factory cost P2,400,000 P500,000
Divided by quantity ÷ 400,000 ÷100,000
Unit cost: P 6.00 P 5.50

8. (b)
Product RR Product SS
Prime cost P 800,000 P 150,000
Overhead:
Cost of operating equipment:
RR: 100/125 x P500,000 400,000
SS: 25/125 x P500,000 100,000
Material handling:
RR: 100/125 x P850,000 566,667
SS: 25/125 x P850,000 283,333
Setups:
RR: 100/125 x P650,000 433,333
SS: 15/125 x P650,000 216,667
Factory cost P2,200,000 P 750,000
Quantity ÷ 400,000 ÷ 100,000
Unit cost P 5.50 P 7.50

9. (c)

Direct cost P 40,000

Overhead:
Utilities: P600,000/P30,000 x 15,000 = 300,000
Setups: P546,000 / 390 x 65 = 91,000
Material handling: P1,280,000/800,000 x 250,000 = 400,000
Factory cost P 831,000

Unit cost: P831,000 / 20,000 units = P 41.55

10. (a)

Direct Cost P 40,000

Overhead: P2,426,000 / 50,000 x 9,000 = 436,680
Total factory cost P476,680
Divided by units produced ÷ 10,000
Unit cost P 47.67

Selling price per unit (P47.67 x 120%) P 57.20

 4

11. (d)

Traditional costing (P27,500 x 14.5%) P3,987.50

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 4,513.00
Excess of ABC over traditional costing P 525.50

12. (a)

Product LL Product MM
Revenues P100,000 P300,000
Direct labor ( 60,000) (100,000)
Overhead (Schedule 1) ( 46,500) (133,500)
Income (loss) P (6,500) P 66,500

Schedule 1:
Product LL Product MM
Maintenance:
LL: P75,000 / 25,000 x 5,000 = P15,000
MM: P75,000 / 25,000 x 20,000 = P 60,000
Product delivery:
LL: P45,000 / 5,000 x 1,000 = 9,000
MM: P45,000 / 5,000 x 4,000 = 36,000
Supervision:
LL: P60,000 / P160,000 x P60,000 = 22,500
MM: P60,000 / P160,000 x P100,000 = 37,500
Total overhead P46,500 P133,500

13. (d)
Vacuum Floor
Cleaners Polishers
Revenue P6,500,000 P5,950,000
Manufacturing cost:
Direct materials 1,000,000 900,000
Direct labor 600,000 2,000,000
Overhead : P1,105,000/130,000 = P8.50
VC: 30,000 x P8.50 255,000
FP: 100,000 x P8.50 850,000
Total 1,855,000 3,750,000
Gross profit P4,645,000 P2,200,000
Divided by units sold ÷ 10,000 ÷ 1,000
Gross profit per unit P 465.50 P 2,200
 5

14. (b)
Vacuum Floor
Cleaners Polishers
Revenue P6,500,000 P5,950,000
Manufacturing cost:
Direct materials 1,000,000 900,000
Direct labor 600,000 2,000,000
Overhead:
VC: P650,000 /130,000 x 30,000 = 150,000
FP: P455,500 / 50,000 x 35,000 = 318,850
Total 1,750,000 3,218,850
Gross profit P4,750,000 P2,731,150
Divided by units sold ÷ 10,000 ÷ 1,000
Gross profit per unit P 475 P 2,731.15
 6

Solution to Problems

Problem 8-1

1. Machine related: P125,000 / 10,000 = P12.50

Others: P295,000 / 25,000 = P11.80

2. 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. Product KK Product GG
Direct materials P100,000 P 310,000
Direct labor 50,000 350,000
Overhead:
KK: P1,500,000/50,000 x 3,000 = 90,000
GG: P1,500,000/50,000 x 47,000 = 1,410,000
Factory cost P240,000 P2,070,000
Divided by units produced ÷ 500 ÷ 15,500
Unit cost P 480 P 133.55

2. Product KK Product GG
Direct materials P100,000 P 310,000
Direct labor 50,000 350,000
Overhead:
Setup related :
KK: P250,000/200 x 120 = 150,000
GG: P250,000/200 x 80 = 100,000
Design related:
KK: P350,000/10,000 x 6,000 = 210,000
GG: P350,000/10,000 x 4,000 = 140,000
Other:
KK: P900,000/50,000 x 3,000 = 54,000
GG: P900,000/50,000 X 47,000 = 846,000
Factory cost P564,000 P1,746,000
Divided by units produced ÷ 500 ÷ 15,500
Unit cost P 1,128 P 112.65
 7

Problem 8-3

1. Multimedia Comfort Type

Keyboards Keyboards
Materials handling:
MK: (5% x P12,000) P 600
CTK: (5% x P15,400) P 770
Machine setup:
MK: (P160 x 45) 7,200
CTK: (P160 x 25) 4,000
Assembly:
MK: (P12 x 400) 4,800
CTK: (P12 x 700) 8,400
Inspection:
MK: (P5 x 400) 2,000
CTK: (P5 x 700) 3,500
Packaging and shipping:
MK: (10 x 9) 90
CTK: (10 x 16) 160
Total overhead costs P14,690 P16,830

2. Multimedia Keyboard: P14,690 /400 = P36.73

Comfort Type Keyboard: P16,830 / 700 = P24.04

Problem 8-4

(a) Material handling: (P30,000 / 1,000) P30 per no. of requisition

Machine setups: (P27,000 / 450) P60 per setup
Quality inspection: (P24,000 / 600) P40 per no. of inspection

(b) Product SS Product HH

Materials handling:
SS: (P30 x 400) P12,000
HH: (P30 x 600) P18,000
Machine setups:
SS: (P60 x 150) 9,000
HH: (P60 x 300) 18,000
Quality inspection:
SS: (P40 x 200) 8,000
HH: (P40 x 400) 16,000
Total overhead costs P29,000 P52,000
 8

Problem 8-5

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

Job 1001: (P2,000 x 280%) P5,600

Job 2002:
Direct materials P12,000
Direct labor 2,000
Overhead: (P2,000 x 280%) 5,600
Total cost P19,600
Unit cost (P19,600 / 50) P392

Job 3003:
Direct materials P 8,000
Direct labor 4,000
Overhead: (P4,000 x 280%) 11,200
Total cost P23,200
Sales price: (P23,200 x 150%) P34,800

2. Job 1001:
Machine setup: (P20,000 / 200) = P100 x 8 = P 100
Inspection: (P130,000 / 6,500) = P20 x 22 = 400
Material handling: (P80,000 / 8,000) = P10 x 30 = 300
Engineering: (P50,000 x 1,000) = P50 x 25 = 1,250
Total overhead cost P2,050

Job 2002:
Direct materials P12,000
Direct labor 2,000
Overhead:
Machine setup: (P100 x 10) P 1,000
Inspection: (P20 x 15) 300
Material handling: (P10 x 40) 400
Engineering: (P50 x 50) 2,500 4,200
Total cost P18,200
Unit cost: (P18,200 / 50) P0.02

Job 3003:
Direct materials P 8,000
Direct labor 4,000
Overhead:
Machine setup: (P100 x 14) P1,400
Inspection: (P20 x 30) 600
Material handling: (P50 x 50) 2,500
Engineering: (P50 x 15) 750 5,250
Total cost P17,250
Sales price: (P17,250 x 150%) 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: (40,000 x P0.05) P2,000
Store goods: (3,000 x P0.10) 300
Move goods: (300 x P2) 600
Identify goods: (5 x P8) 40
Total cost P2,940

Basco:
Send/receive goods: (40,000 x P0.05) P2,000
Store goods: ( 2,000 x P0.10) 200
Move goods: ( 200 x P2) 400
Identify goods: ( 20 x P8) 160
Total P2,760

Casio:
Send/receive goods: (40,000 x P0.05) P2,000
Store goods: ( 1,000 x P0.10) 100
Move goods: ( 1,000 x P2) 2,000
Identify goods: ( 80 x P8) 640
Total P4,740

b. Anson: 40,000 x P0.08 = P3,200

Basco: 40,000 x P0.08 = P3,200
Casio: 40,000 x P0.08 = P3,200

c. Anson: P2,940 x 130% = P3,822

Basco: P2,760 x 130% = P3,588
Casio: P4,740 x 130% = 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 Job 789
Direct materials P19,400 P119,800
Direct labor 1,500 22,500
Manufacturing overhead:
Job 456: P230 x P50 11,500
Job 789: P230 x P750 172,500
Total manufacturing costs P32,400 P314,800
Divided number of units ÷ 20 ÷ 400
Manufacturing cost per unit P 1,620 P 787

2. Job 456 Job 789

Direct materials P19,400 P119,800
Direct labor 1,500 22,500
Manufacturing overhead:
Materials handling:
P0.80 x 1,000; P0.80 x 4,000 800 3,200
Lathe work:
P0.40 x 40,000; P0.40 x 120,000 16,000 48,000
Milling:
P40 x 300; P40 x 2,100 12,000 84,000
Grinding:
P1.60 x 1,000; P1.60 x 4,000 1,600 6,400
Testing:
P30 x 20; P30 x 400 600 12,000
Total manufacturing cost P51,900 P295,900
Number of units ÷ 20 ÷ 400
Unit manufacturing cost P 2,595 P 739.75

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

a. the job orders differ in the way the use each of five activity areas, and
b. 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: P16 / P20 = 80% of an hour; .80 x 60 minutes = 48 minutes

Gazebos: P120 / P20 = 6 DLHs
Tents: P40 / P10 = 2 DLHs

b. Umbrellas: (P16 x 200,000) P3,200,000

Gazebos: (P120 x 20,000) 2,400,000
Tents: (P40 x 60,000) 2,400,000
Total overhead cost P8,000,000

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
 11

Problem 8-8 (continued)

Overhead Cost Allocation:

Umbrellas Gazebos Tents
Quality control:
P1.43 x 200,000 P 286,000
P1.43 x 20,000 P 28,600
P1.43 x 60,000 P 85,800
Setups:
P200 x 400 80,000
P200 x 800 160,000
P200 x 800 160,000
Material handling:
P0.30 x 800,000 240,000
P0.30 x 2,000,000 600,000
P0.30 x 1,200,000 360,000
Equipment operation:
P3.00 x 400,000 1,200,000
P3.00 x 800,000 2,400,000
P3.00 x 800,000 2,400,000
Total overhead P1,806,000 P3,188,600 P3,005,800
Number of units ÷ 200,000 ÷ 20,000 ÷ 60,000
Overhead cost per unit P 9.03 P 159.43 P 50.10

Total cost per unit:

Direct materials P 8.00 P 80.00 P 8.00
Direct labor 12.00 90.00 30.00
Overhead 9.03 159.43 50.10
Total P29.03 P329.43 P88.10

d. 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. Mauna Loa African

Direct materials P 8.40 P 6.40
Direct labor 0.60 0.60
Manufacturing overhead (0.60 x P5.00) 3.00 3.00
Total costs P12.00 P10.00

Budgeted selling prices per kilo:

Mauna Loa (P12.00 x 130%) = P15.60
African (P10 x 130%) = P13.00
 12

Problem 8-9 (continued)

2. Total budgeted unit costs per kilo are:

Mauna Loa African Coffee
Direct materials P 8.40 P 6.40
Direct labor 0.60 0.60
Manufacturing overhead:
Purchase orders:
MLC: ( 4 x P1,000 ÷ 100,000) 0.04
AC: ( 4 x P1,000 ÷ 2,000) 2.00
Material handling:
MLC: (30 x P800 ÷ 100,000) 0.24
AC: (12 x P800 ÷ 2,000) 4.80
Quality control:
MLC: (10 x P480 ÷ 100,000) 0.04
AC: (4 x P480 ÷ 2,000) 0.96
Roasting:
MLC: (1,000 x P20 ÷ 100,000) 0.20
AC: (20 x P20 ÷ 2.000) 0.20
Blending:
MLC: (500 x P20 ÷ 100,000) 0.10
AC: (10 x P20 ÷ 2,000) 0.10
Packaging:
MLC: (100 x P20 ÷ 100,000) 0.02
AC: (2 x P20 ÷ 2,000) 0.02
Total cost per unit P 9.64 P15.08

Problem 8-10

(a) Purchasing: (P240,000 / 1,500) P160 per order

Processing: (P1,400,000 / 1,000,000) P1.40 per liter
Packaging: (P580,000 / 400,000) P1.45 per container
Testing:(P240,000 / 4,000) P60 per test
Storage: (P180,000 /18,000) P10 per liter
Washing: (P560,000 / 800) P700 per batch

(b) Paint XX Paint YY

Purchasing:
(P160 x 800) ; (P160 x 700) P 128,000 P 112,000
Processing:
(P1.40 x 400,000; (P1.40 x 600,000) 560,000 840,000
Packaging:
(P1.45 x 180,000); (P1.45 x 220,000) 261,000 319,000
Testing:
(P60 x 2,100); (P60 x 1,900) 126,000 114,000
Storage:
(P10 x 10,400); (P10 x 7,600) 104,000 76,000
Washing:
(P700 x 350); (P700 x 450) 245,000 315,000
Total overhead cost P1,424,000 P1,776,000

(c) Unit overhead cost: Paint XX (P1,424,000 / 180,000 container = P7.91

 13

Paint YY (P1,776,000 / 220,000 container = P8.07