Chapter 13

Job Order Costing

Job order costing is a procedure of accumulating the three elements of cost, materials, labor,
and overhead by job order. Job order costing problems often appear in the CPA examination.
The discussion on this shall be limited to the basic review of the flow of cost under a job order
costing.

Candidates should have sound knowledge on the following types of problems involving job order
costing:

1. Job order costing procedures.

2. Preparation of Statement of Cost of Goods Manufactured and Sold.
3. Accounting for spoiled units and rework costs.
4. Allocation of service department costs.

JOB ORDER COSTING PROCEDURES

Job order costing procedures may be summarized as follows:

1. Job order costing applied to cost as follows

a. Direct materials and direct labor costs are traced to a particular job.
b. Cost not directly traceable (overhead) are applied to individual job using a
predetermined overhead application rate.
2. The overhead rate is a predetermined yearly rate using as base, labor hours,
machine hours, or labor cost.
3. Practically, the difference between overhead applied and actual overhead is closed
to cost of goods sold at the end of period.

PREPARATION OF STATEMENT OF COST OF GOODS MANUFACTURED

Statement of Cost of Goods Manufactured refers to the cost of the jobs completed whether
they were started before or during the current accounting period. In the preparation of the
statement, candidate should know the presentation of the following cost elements:

1. Direct materials. These are materials which become an integral part of the finished
product.
2. Direct labor. This represents the labor which acts directly on the product and
physically transforms the product by machine.
 3. Manufacturing overhead. This consists of all product costs other than direct
materials and direct labor costs.
4. Prime cost. This is the sum of direct materials and direct labor costs.
5. Conversion cost. This is the sum of direct labor cost and manufacturing overhead.
6. Manufacturing cost. This is the sum of direct materials, direct labor and
manufacturing overhead costs.
7. Under-applied or over-applied manufacturing overhead. This is the difference
between the actual overhead incurred and the applied (estimated) overhead.

The usual format of the statement presented below:

Direct material used:

Beginning inventory, January 1 xx
Purchases xx
Cost of material available for use xx
Ending inventory, December 31 xx xx
Direct labor xx
Applied manufacturing overhead xx
Manufacturing costs xx
Add beginning work in progress, January 1 xx
Cost of goods placed in process xx
Less ending work in process, December 31 xx
Cost of goods manufactured xx

The Cost of Goods Sold in a manufacturing company is usually computed as:

Beginning finished goods inventory xx

Cost of goods manufactured xx
Cost of goods available for sale xx
Less ending finished goods inventory xx
Cost of goods sold at normal costing xx
Under-applied (over-applied) overhead xx
Cost of goods sold at actual costing xx

ALLOCATION OF SERVICE (SUPPORT) DEPARTMENT COSTS

Service departments benefit the manufacture of products even though they are not directly
involved in converting raw materials into finished goods. For this reason, service department
costs must be reallocated to producing departments, both in computing predetermined
overhead rates and in measuring actual overhead costs of producing deparments.
Candidates should remember the following methods of service cost allocation:

1. Direct method. Under this method, the cost of each service department is allocated
directly to producing departments.
2. Step-down method. This method involves allocation of service department costs to
both service and producing department. Costs of the most widely used service
department or the department with the highest total cost are first allocated to all
other departments. The costs of the next most widely-used service department are
then allocated. These costs will include those previously allocated from the first
department. These steps continue until all service department costs have been
allocated. Once a service department costs have been allocated, no further
allocation are made to it from other departments.
3. Reciprocal method. This method allocates costs by explicitly including the mutual
services provided among all service departments. For example, the Service
Department 1 maintains all the computer equipment in Service Department 2.
Similarly, Service Department 2 also provides database support for Department 1.
The reciprocal allocation method fully incorporates interdepartmental relationships
into the service department cost allocation.

ACCOUNTING FOR SPOILAGE AND REWORK

SPOILAGE

These are units that do not meet production standards. Spoilage may be normal or abnormal.
Costs of abnormal spoilage are not considered to be inventoriable costs and are written off as
costs of the period during which the abnormal spoilage is detected. Normal spoilage costs are
inventoriable costs. When assigning costs, job-costing system generally distinguish normal
spoilage attributable to a specific job from normal spoilage common to all jobs.

To illustrate the accounting for spoilage in job order costing, assume the following example.

In the Iraq Machine Shop, 5 units out of job lot of 50 units are spoiled. Costs assigned prior to
the inspection point are P2,000 per unit. Our presentation here focuses on how the P2,000 cost
per unit is accounted for. When the spoilage is detected, the spoiled goods are inventoried at
P600 per unit, the net disposal value.

Normal spoilage attributable to a specific job. When normal spoilage occurs because of
customers specification of a particular job, that job bears the cost of spoilage reduced by the
disposal value of the spoilage. The journal entry to recognize disposal value is:

Materials or spoiled goods inventory (5 units x P600/unit) 3,000

 Work in process (specific job) 3,000

Note: the Work in Process account has already been debited (charged) P10,000 for the spoiled
units (5 x P2,000). The effect of the P3,000 entry is to make the net cost of normal spoilage,
P7,000 (10,000 3,000), an additional cost of the 45 (50 - 5) good units produced. The total
cost of the 45 good units is P97,000, comprising P90,000 (45 units x P2,000) incurred to
produce the good units plus the P7,000 net cost of abnormal spoilage. The cost per good units
is P2,155.56 (P97,000 / 45 good units).

Normal spoilage common to all jobs. In some cases, spoilage may be due to internal failure.
The spoilage inherent in production will, of course, occur when a specific job is worked on. But
the spoilage is not attributable to, and hence, is not charged to the specific job. Instead, the
spoilage is costed as manufacturing overhead. The journal entry is:

Materials or spoiled goods inventory (5 units x P600) 3,000

Manufacturing overhead control (P10,000 P3,000) 7,000
Work in Process (5 units x P2,000) 10,000

Abnormal spoilage. If the spoilage is abnormal, the net loss is charged to an abnormal loss
account. Unlike normal spoilage costs, abnormal spoilage costs are not included as part of the
cost of good units produce. The total cost of the 45 units is P90,000 (45 units x P2,000). The
cost per good unit is P2,000 (P90,000 / 45 good units). The entry is:

Materials (5 units x P600) 3,000

Loss from abnormal spoilage (P10,000 P3,000) 7,000
Work in Process (5 units x P2,000) 10,000

REWORK

Rework is units of production that are inspected, determined to be unacceptable, repaired, and
sold as acceptable finished goods. We again distinguish (1) normal rework attributable to a
specific job, (2) normal rework common to all jobs, and (3) abnormal rework.

To illustrate, consider the Iraq Machine Shop data. Assume the five spoiled units are reworked.
The journal entry for the P10,000 of total costs (the details of these costs are assumed)
assigned to the five spoiled before considering rework costs is:

Work in Process (specific job) 10,000

Materials 4,000
Wages payable 4,000
Applied manufacturing overhead 2,000
Assume the rework costs equal P3,800 (compose of P800 direct materials, P2,000 direct labor,
and P1,000 manufacturing overhead).

Normal rework attributable to a specific job. If the rework is normal but occurs because of
customers specification in the specific job, the rework costs are charged to that job. The
journal entry is:

Work in Process (specific job) 3,800

Materials 800
Wages payable 2,000
Applied manufacturing overhead 1,000

Normal rework common to all jobs. When rework is normal and not attributable to a specific
job, the costs of rework are charged to manufacturing overhead and spread, through overhead
allocation, over all jobs. The journal entry is:

Manufacturing overhead control 3,800

Materials 800
Wages payable 2,000
Applied manufacturing overhead 1,000

Abnormal rework. If the rework is abnormal, it is recorded by charging abnormal network to a

loss account. The journal entry is:

Loss from Abnormal Rework 3,800

Materials 800
Materials 2,000
Applied manufacturing overhead 1,000
 PROBLEMS

1. Maganda Company manufactures pipes and uses a job order costing system. During May,
the following jobs were started (no other jobs were in process) and the following costs were
incurred:

Job X Job Y Job Z Total

Materials P10,000 P20,000 P15,000 P45,000
Direct labor 5,000 4,000 2,500 11,500
P15,000 P24,000 P17,500 P56,500
In addition, estimated overhead of P300,000 and direct labor costs of P150,000 were
estimated to be incurred during the year. Actual overhead of P24,000 was incurred in May;
overhead is applied on the basis of direct labor costs. If only Job X and Job Z were
completed during the month, the journal entry to record the initiation of all jobs would be:

a. Work-in-process P79,500
Material P45,000
Wages payable 11,500
Applied factory overhead 23,000
b. Work-in-process 80,500
Direct materials 45,000
Direct labor 11,500
Factory overhead 24,000
c. Work-in-process 80,500
Direct materials 45,000
Direct labor 11,500
Applied factory overhead 24,000
d. Direct labor 11,500
Direct materials 45,000
Work-in-process 56,500
2. Malakas Company is a manufacturing concern using the perpetual inventory system. The
following materials inventory account data is provided:
Beginning balance P275,000
Other debts to the account 835,000
Excess of ending inventory over beginning inventory 55,000
How much is the cost of materials issued to production?
a. P770,000
b. 1,045,000
c. 1,100,000
 d. 1,155,000
3. The books of Chico Manufacturing Co. showed the following data for the month of October
2013:

Opening and closing inventories:

Oct. 1 Oct. 31
Raw materials P16,000 P17,200
Work in Process 16,000 24,000
Finished goods 28,000 36,000
Direct labor cost, P32,000
Factory Overhead, 75% of direct labor cost
Cost of goods sold, P112,500

What is the cost of materials purchased during the month?

a. P87,200
b. 73,200
c. 72,000
d. 71,200
4. Durian Company has the following data in April 30, 2013:
April manufacturing overhead P30,101.80
Decrease in ending inventories:
Materials 2,430
Goods in Process 590
Increase in ending inventory:
Finished goods 1,320.40
The manufacturing overhead amounts to 50% of the direct labor, and the direct labor and
manufacturing combined equal 50% of the total cost manufacturing. All materials are
purchased F.O.B. shipping point.

What is the cost of goods manufactured?

a. P180,610.80
b. 181,200.80
c. 182,300.00
d. 183,200.80

5. Mangga, Inc. employs a job order cost system, Its manufacturing activities in July, 2013, its
first month of operation, are summarized as follows:
JOB NUMBERS
201 202 203 204
 Direct materials P7,000 P5,800 P11,600 P5,000
Direct labor cost 6,600 6,000 8,400 2,400
Direct labor hours 1,100 1,000 1,400 400
Units produced 200 100 1,000 300
Manufacturing overhead is applied at a rate of P2 per direct labor hour to variable
overhead, P3 per hour for fixed overhead.
Jobs 201, 202 and 203 were completed in July.
What is the cost of the completed jobs?
a. P62,900
b. 62,500
c. 72,900
d. 65,900

6. The Atis Corporation manufactures one product and accounts for cost by a job order
system. You have obtained the following information for the year ended December 31,
2013 from the corporation's books and records:

Total manufacturing cost added during 2013 based on P1,000,000

actual direct materials, actual direct labor and applied
factory overhead on actual direct labor cost
Cost of goods manufactured based on actual direct 970,000
materials and direct labor and applied factory overhead
Applied factory overhead to work in process based on 75%
direct labor cost
Applied factory overhead for the year, based on total 27%
manufacturing cost
Beginning work in process inventory was 80% of ending work in process inventory.

What is the cost of direct materials used for year ended December 31, 2013?
a. P370,000
b. 970,000
c. 990,000
d. 970,500

7. The Papaya Company uses a job order cost system. The following data were obtained from
the company's cost records as of June 30. No jobs were in process at the beginning of June,
all costs listed being incurred during the month.

Job Order No. Direct Materials Direct Labor Hours Direct Labor Cost
1001 P4,320 1,300 P1,600
 1002 9,150 3,700 7,250
1003 11,275 8,200 14,325
1004 3,225 1,500 2,800
1005 6,500 3,200 6,100
1006 2,750 980 1,650

Manufacturing overhead costs are charged to jobs on the basis of P1.50 per direct labor
hour. The actual manufacturing overhead cost for the month totalled P30,350. During June,
Job Order Nos. 1001, 1002, 1004 and 1005 were completed. Jobs 1001 and 1002 were
shipped out and the customers were billed P9,000 for Job 1001 and P20,000 for Job 1002.

The cost of goods manufactured would be:

a. P55,500
b. 55,495
c. 56,495
d. 57,500

8. The Apple Manufacturing Company manufactures a product exclusively to customer orded,

employing a job order cost system.

On August 1, 2013, its work in process inventory (5 partially completed jobs) had a cost of
P3,000.

During August, no additional orders were put into production and 18 orders were
completed (total cost, P24,000) of which 14 (cost P20,000) were shipped.

Material requisition in August totalled P17,000 and direct labor cost were P8,000 at the
beginning of the year, 2013, a predetermined overhead rate of 150% of expected direct
labor cots was established.

The August 31, 2013 work in process inventory is:

a. P4,000
b. 14,000
c. 16,000
d. 20,000

9. Job No, 210 has, at the end of the second week in February, an accumulated total cost of
P4,200. In the third week, P1,000 of direct materials were used on the Job, together with
P10 of indirect materials.
 Twenty (20) hours of direct labor services were applied to the job at a cost of P5 per hour.
Manufacturing overhead was applied at the basis of P2.50 per direct labor hour for fixed
overhead and P2 per hour variable overhead.

Job No. 210 was the only job completed during the third week.

The total cost of Job Order No. 210 is:

a. P5,390
b. 5,360
c. 5,350
d. 5,400

10. Peanuts Corporation uses a job-order cost system and has two production departments, M
and A, budgeted manufacturing costs for 2013 are as follows:
Department Department
M A
Direct materials P700,000 P100,000
Direct labor 200,000 800,000
Manufacturing overhead 600,000 400,000
The actual material and labor costs charged to Job No. 432 during 2013 were as follows:
Direct material P25,000
Direct labor:
Department M P8,000
Department A 12,000 20,000
Peanuts Corporation applies manufacturing overhead to production orders on the basis of
direct-labor cost using departmental rates predetermined at the beginning of the year
based on the annual budget. The total manufacturing cost associated with Job No. 432 for
2013 should be:
a. P50,000
b. 55,000
c. 65,000
d. 75,000

11. Banana Corporation has a job order cost system. The following debits (credits) appeared in
the ledger account work in process for the month of March, 2013:
March 1, Balance P12,000
31, Direct materials 40,000
31, Direct labor 30,000
31, Factory overhead 27,000
31, To finished goods (100,000)
 Banana applied overhead to production at a predetermined rate at 90% based on the direct
labor cost. Job No.232, the only job still in process at the end of March, 2013, has been
charged with factory overhead of P2,250. What was the amount of direct materials charged
to Jon No.232>
a. P2,250
b. P2,500
c. P4,250
d. P9,000

12. The work-in-process account of the Matamis Company which uses a job order cost system
follows:
Work-In-Process
April 1 Balance P25,000 Finished Goods P125,450
Direct Materials 50,000
Direct labor 40,000
Fac. Overhead Applied 30,000

a. P8,700
b. P7,600
c. P4,500
d. P4,200
13. The following data were taken from the records of Sampaloc Company:
08/31/2013 09/30/2013
Inventories:
Raw Materials P ? P50,000
Work in process 80,000 95,000
Finished goods 60,000 78,000

Raw materials purchases, P46,000

Factory overhead, 75% of direct labor cost, P63,000
Selling and administrative expenses, 12.5% of sales, P25,000
Net income for September,2013 P25,000

What is the cost of raw materials inventory on August 31,2013?

a. P30,000
b. P40,000
c. P46,000
d. P50,000
14. Macopa Corporation manufactures rattan furnitures sets for export and uses the job order
cost system in accounting for its costs. You obtained from the corporations books and
records the following information for the year ended December 31,2013:
- The work in process inventory on January 1 was 20% less than the work in process
inventory on December 31.
- The total manufacturing cost added during 2013 was P900,000 based on actual direct
materials and direct labor but with manufacturing overhead applied on actual direct
labor pesos.
- The manufacturing overhead applied to process was 72% of the direct labor pesos, and
it was equal to 25% of the total manufacturing costs.
- The cost of goods manufactured, also based on actual direct labor and applied
manufacturing overhead, was P850,000.

The cost of direct materials used and the work in process inventory on December 31, 2011 are:

Direct materials used WIP Inventory, 12/31/2013

a. P1,075,000 P200,000
b. P362,500 P250,000
c. P312,500 P250,000
d. P1,100,000 P275,000
15. The Narra Company uses a job order cost accounting system. Overhead is applied to
production at a predetermined rate based on direct labor cost.
The following posting appears in the ledger accounts of the company for the month of
September 2013:
Debit
Work in Process, September 1 P30,000
Direct materials 60,000
Factory overhead 40,000
Direct labor 50,000

On September 30,2013, finished goods completed, from work in process cost P160,000.
Job No. 327 was the only job not completed in September, and it has been charged P4,600
for factory overhead.

Direct materials charged to Job No. 327 was:

a. P10,350
b. P14,650
c. P9,650
d. P25,000
16. Pears Factory uses a job order cost system. Per company records, the total charges to work-
in-process in March 2013 were as follows:

Direct materials P125,000

Direct labor 122,000
Overhead- 75% of direct labor cost

No jobs were in process at the beginning of the month. During the month, work in process in
the amount of P310,500 was charged to finished goods. On March31,2012, the only job order
remaining was Job No., 100 with a direct labor cost of P10,000.

The cost of direct materials charged to Job No. 100 was:

a. P20,500
b. P14,875
c. P10,500
d. P15,000

17. The factory ledger of the Malave Co. contains the following account:

Goods in Process
Materials P40,000 Finished Goods P120,000
Labor 100,000
Overhead 80,000

The amount of materials charged to the uncompleted job was P28,000.

The amounts of labor and overhead charges for the uncompleted job are:

Labor Overhead
a. P40,000 P32,000
b. P32,000 P40,000
c. P72,000 P40,000
d. P40,000 P72,000

18. Santol Company had the following inventories:

April 1 April 30
Direct materials P36,000 P45,000
Work in process 18,000 26,000
Finished goods 54,000 72,000
The following information were available for April 2013:

Direct labor P60,000

Direct labor rate per hour P 7.50
Overhead rate per direct labor hour 10.00
Cost of goods manufactured 153,650

What is the prime cost during April 2013?

a. P81,650
b. P80,000
c. P90,000
d. P96,000
19. Kasoy Company has underapplied overhead of P45,000 for the year ended December
31,2013. Before disposition of the underapplied overhead, selected December 31,2013
balances from Worleys accounting records are as follows:

Sales P1,200,000
Cost of goods sold 720,000
Inventories:
Direct materials 36,000
Work in process 54,000
Finished goods 90,000

Under Worleys cost accounting system , over or underapplied overhead is allocated to

appropriate inventories and cost of goods sold based on year end balances. In his 2013
statement of comprehensive income, kasoy should report cost of goods sold of:

a. P682,500
b. P684,000
c. P756,000
d. P757,500
20. Orange Company uses a job order cost system and applies factory overhead to production
orders on the basis of direct labor cost. The overhead rates for 2013 are 200% of
Department A and 50% for Department B. Job NO.123, started and completed during 2013,
was charged with the following costs:

Department
A B
Direct materials P25,000 P5,000
Direct labor ? 30,000
Factory overhead 40,000 ?

The total manufacturing cost associated with Job 123 should be:
 a. P135,000
b. P180,000
c. P195,000
d. P240,000

21. Sampaguita Company uses a job order cost system. The following debits(credits) appeared
in Sampaguitas work in process account for the month of April 2013:

April Description Amount

1 Balance P 4,000
30 Direct materials 24,000
30 direct labor 16,000
30 factory overhead 12,800
30 To finished goods (48,000)

Sampaguita applies overhead to production at a predetermined rate of 80% of direct labor

costs. Job No. 5, the only job still in process on April 30,2013, has been charged with direct
labor of P2,000. What was the amount of direct materials charged to Job No. 5?

a. P3,000
b. P5,200
c. P8,800
d. P24,000
22. Narra Marketing Corp. uses a job order cost system. It has three production departments, X,
Y and Z. the manufacturing budget cost for 2013 is a sfollows:

Dept. X Dept. Y Dept.Z

Direct materials P600,000.00 P400,000.00 P200,000.00
Direct labor 200,000.00 1,500,000.00 1,500,000.00
Mfg. overhead 600,000.00 100,000.00 200,000.00
For Job No. 01-90 completed in 2013, direct material cost was P75,000.00; direct labor, Dept. X,
P40,000.00, Dept. Y, P100,000.00, Dept. Z, P20,000.00. the corporation applies manufacturing
overhead to each job on the basis of direct labor cost using department rates predetermined at
the beginning of the year based on the manufacturing budget cost.

The total manufacturing cost of Job No. 01-90 is:

a. P235,000
b. P310,000
c. P280,000
d. P150,000
23. Accacia Crafts manufactures to customer order using the job order cost system. For the
month just ended, it registered the following data:
 Beginning work in process (5 partially completed jobs) P300,000
Orders completed (18) 2,400,000
Orders shipped (14) 2,000,000
Materials requisitioned for the month 1,700,000
Direct labor cost 800,000
Overhead rate 150 of direct labor cost
The ending work in process inventory was:
a. P1,600,000
b. P1,400,000
c. P300,000
d. P700,000

24. The accounting records for 2013 of Yamaha Music Co. showed the following:
Increase in raw materials inventory P45,000
Decrease in finished goods inventory 150,000
Raw materials purchased 1,290,000
Direct labor payroll 600,000
Factory overhead 900,000
Freight-out 135,000
The cost of raw materials used for the period amounted to:
a. P1,245,000
b. P1,290,000
c. P1,335,000
d. P1,380,000
25. The following information relates to Job No. 2468, which is being carried out by Matibay
Company to meet customers order.
Department A Department B
Direct materials consumed P5,000 P3,000
Direct labor hours employed 400 200
Direct labor rate per hour 4 5
Production overhead per direct labor hours 4 4
Administrative and other overhead 20% of full production cost
Profit mark up 25% of selling price
What is the selling price to the customer of Job 2468?
a. P16,250
b. P20,800
c. P17,333
 d. P19,810
26. The Handyman Corp. manufactures specialized precision tools for the electronics industry. It
receives various job orders. For the month of April, it started work in two orders, East and
West. The total materials cost for both orders were estimated at P80,000 of which 60%
applies to East and 40% to West. Direct labor hours were estimated at 700 for East and 400
for West. The labor rate amounted to P18 per hour. Variable overhead varies at the rate of
P10 per hour.
By the end of April, 75% of the required materials were issued to production amounting to
P90,000. Also, the two orders were all 50% completed with respect to labor and overhead.
Labor hours for the month were charged at 360 to East and 180 to West. Variable overhead
equated to the hourly rate given.
The total actual cost for East order for the month of April is:
a. P64,080
b. P45,800
c. P52,350
d. P67,600
27. Last month, Sago Company placed P60,000 of materials into production. The Printing
Department used 8,000 labor hours at P5.60 per hour and the Binding Department used
4,600 hours at P6.00 per hour. Factory overhead is applied at a rate of P6.00 per labor hour
in the Printing Department and P8.00 per labor hour in the Printing Department. Sagos
inventory accounts show the following balances:
Beginning Ending
Finished goods P22,000 P17,000
Work in process 15,000 17,600
Materials 20,000 18,000
What is the cost of goods sold at normal costing?
a. P219,600
b. P214,600
c. P108,000
d. P217,200
28. Banaba Company provided the inventory balances and manufacturing cost data for the
month of January.
Under the Banabas cost system, any over or underapplied overhead is closed to the cost of
goods sold account at the end of the calendar year.
Inventories January 1 January 31
Direct materials P30,000 P40,000
Work in process 15,000 20,000
Finished goods 65,000 50,000
 Month of January
Factory overhead applied P150,000
Cost of goods manufactured 515,000
Direct materials used 190,900
Actual factory overhead 144,.000
What is the cost of goods sold at actual costing?
a. P509,000
b. P524,000
c. P530,000
d. P536,000
29. Polo Companys Job 501 for the manufacture of P2,200 shoes was completed during August
2013 at the following unit costs:
Direct materials P20
Direct labor 18
Factory overhead (includes an allowance of P1 for spoiled work) 18
Final inspection of Job 501 disclosed 200 spoiled shoes which were sold to a department
store for P6,000.
What would be the unit cost of the goods shoes produced on Job 501 if spoiled loss is
charged to:
All Production Specific Job 501
a. P56.00 P57.50
b. P53.00 P57.50
c. P56.00 P56.00
d. P53.00 P55.00

Items 30 and 31 are based on the following data:

During March Trinity Company incurred the following costs on Job Order 111 for manufacturing
of 200 units:

Original cost accumulation

Direct materials P660
Direct labor 800
Factory overhead (150% of direct labor cost) 1,200
P2,660
Direct cost of reworking 10 units:
Direct materials P100
Direct labor 160
P260
30. The rework costs were attributable to the exacting specifications of Job Order 111 and the
full rework costs were charged to the specific job. What is the cost per finished unit of Job
Order 111?
a. P15.80
b. P14.60
c. P14.00
d. P13.30
31. Assuming the rework costs were attributable to internal failure, what is the cost per
finished unit of Job 109?
a. P15.80
b. P14.60
c. P14.00
d. P13.30
32. True Value Company manufactures electric drills to the exact specifications of various
customers. During April 2013, Job 403 for the production of 1,100 units was completed at
the following costs per unit:
Direct materials P10
Direct labor 8
Applied factory overhead 12
Total P30
Final inspection of Job 403 disclosed 50 defective units and 100 spoiled units. The defective
units were reworked at a total cost of P500, and the spoiled units were sold to an employee
for P1,500. What should be the unit cost of the good units produced on Job 403?
a. P33
b. P32
c. P30
d. P29
33. Some units of output failed to pass final inspection at he end of the manufacturing process.
The production and inspection supervisors determined that the incremental revenue from
reworking the units exceeded the cost of rework. The rework of the defective units was
authorized, and the following costs were incurred in working the units:
Materials requisitioned from stores:
Direct materials P5,000
Indirect materials 300
Direct labor 14,000
The manufacturing overhead budget includes an allowance for rework. The predetermined
manufacturing overhead rate is 150% of direct labor cost. The account(s) to be charged and
the appropriate charges for the rework cost would be:
 a. Work in process inventory control for P19,000
b. Work in process inventory control for P5,000 and manufacturing overhead control for
P35,300.
c. Manufacturing overhead control for P19,300.
d. Manufacturing overhead control for P40,300.
34. Cosmos Corporation distributes service department overhead costs directly to producing
departments without allocation to the other service departments. Information for the
month of May is as follows:
Service Departments
Maintenance Utilities
Overhead costs incurred P20,000 P10,000
Service provided to departments:
Maintenance - 10%
Utilities 20% -
Producing- A 40% 30%
Producing- B 40% 60%
Total 100% 100%
The amount of maintenance department costs allocated to Producing-A department for
May was:
a. P8,000
b. P8,000
c. P10,000
d. P11,000
Use the following data in answering numbers 35 to 40
Pomelo Company has two service department (1 and 2) and two operating (producing)
departments (A and B). Data provided are as follows:
Service Operating
Departments Departments
1 2 A B
Direct costs P150 P300 P5,000 P6,000
Services performed by Department 1 40% 40% 20%
Services performed by Department 2 20% 70% 10%
Assuming the direct method is used to allocate service department costs:
35. What is the service department cost allocated to Department B?
a. P50.00
b. P60.00
c. P87.50
d. P150.00
36. What is the total cost of Department A?
a. P5,000.00
b. P5,295.83
c. P5,362.50
d. P5,270.00
Assuming the step-down method is used to allocate service department costs:
37. What is the service department costs allocated to Department B?
a. P60.00
b. P100.00
c. P75.00
d. P66.00
38. What is the total cost of Department A?
a. P5,375
b. P5,350
c. P5,075
d. P5,270
Assuming the reciprocal method is used to allocate service department costs:
39. What is the service department cost allocated to Department B (rounded)?
a. P60.00
b. P75.00
c. P84.78
d. P135.00
40. What is the total cost of Department A (rounded)?
a. P5,365.00
b. P5,087.00
c. P5,375.00
d. P5,085.00
41. J &J Company has two service departments (SS1 and SS2) and two productions departments
(PP1 and PP2). Departmental data for January were as follows:
SS1 SS2
Costs incurred P27,000 P18,000
Services provided to:
SS1 - 20%
SS2 10% -
PP1 50% 30%
PP2 40% 50%
 What is the total allocated service departmental costs to PP2 if the company uses the
reciprocal method of allocating the service department costs? (Round computations to the
nearest whole number).
a. P19,800
b. P21,949
c. P22,500
d. P23,051
Question 42-44 are based on the following data:
Baby Companys beginning and ending inventories for the month of November are:
November 1 November 30
Direct materials P67,000 P62,000
Work in process 145,000 171,000
Finished goods 85,000 78,000
Production data for the month of November follows:
Direct labor P200,000
Actual factory overhead 132,000
Direct materials purchased 163,000
Transportation in 4,000
Purchase returns and allowances 2,000
Baby uses one of the factory overhead control account and charges factory overhead to
production at 70% of direct labor cost. The company does not formally recognize
over/under applies overhead until year-end.
42. Baby Companys prime cost for November is:
a. P370,000
b. P168,000
c. P363,000
d. P170,000
43. Baby Companys cost of goods sold for November is:
a. P484,000
b. P491,000
c. P502,000
d. P476,000
44. Baby Companys net charge to factory overhead control for the month of November is:
a. P8,000 debit, overapplied
b. P8,000 debit, underapplied
c. P8,000 credit, overapplied
d. P8,000 credit, underapplied

Question 45 and 46 are based on the following:

 J & P tool Inc. has three service departments that support the production area. Outlined
below is the estimated overhead by department for the upcoming year.

Estimated Number of
Service Departments Overhead Employees
Receiving P25,000 2
Repair 35,000 2
Tool 10,000 1
Production Departments
Assembly 25
Boiling 12
The Repair Department supports the greatest of departments, followed by the Tool
Department. Overhead cost is allocated to departments based upon the number of
employees.

45. Using the direct method of allocation, how much of the Repair Department overhead will
be allocated to the Tool Department?
a. Zero
b. P875
c. P7,000
d. P11,667
46. Using the step-down method of allocation, the allocation from the Repair Department to
the Tool Department would be:
a. Zero
b. P875
c. P7,000
d. P11,667

Question 47 and 48 are based on the following information:

Roque Metal Shop Inc., manufactures metal products that require casting, such as engine
blocks, pistons, and engine housings. During the current year, an order of 30,000 custom
housing was begun on job number 202 for Mr. German. After the job was completed, the
housing was inspected and 4% of the units were determined to be defective. Mr.German
agreed to accept the goods units only at 140% of cost. The spoilerd units can be sold as seconds
for P15 each. Spoiled goods are kept in an inventory account separate from finished goods.

Total costs charged to job number 202 are:

Materials P276,000
Labor (6,000 hours x P14 per hour) 84,000
Factory overhead (P30 per labor hour) 180,000

47. If the spoilage units are the result of an internal failure, what is the unit cost of good units?
a. P18.00
b. P19.50
 c. P18.50
d. P19.00
48. If the spoilage is attributable to Job 202 only, what is the unit selling price of the good units?
a. P25.375
b. P20.50
c. P25.00
d. P20.375
Use the following data for Question 49 and 50.
Muscle Machine Shop manufactures lifting equipment. One order from Simmers World for 200
lifting equipment showed the following costs per unit:
Materials P400
Labor 175
Factory overhead, 160% of direct labor cost (150% in
Cases in which any defective unit costs are to
Charged to a specific order).
Final inspection revealed that 15 of the units were not properly produced. Correction of each
defective unit requires P50 for materials, P80 for labor, and factory overhead at the appropriate
rate.
49. Assuming cost of defective units is charged to all the jobs, what is the unitr cost of finished
goods?
a. P650
b. P640
c. P655
d. P550
50. Assuming cost of defective units is charged to the job order, what is the unit cost of each
unit manufactured?
a. P674.85
b. P475.50
c. P656.25
d. P690.50
 ANSWERS

1.a 11.c 21.b 31.d 41.d

2.a 12.a 22.c 32.b 42.a

3.b 13.b 23.a 33.d 43.b

4.b 14.b 24.a 34.c 44.c

5.a 15.c 25.b 35.c 45.a

6.b 16.c 26.a 36.c 46.b

7.b 17.a 27.a 37.b 47.a

8.c 18.a 28.b 38.b 48.a

9.d 19.d 29.a 39.c 49.c

10.d 20.a 30.a 40.a 50.c

SOLUTIONS AND EXPLANATIONS

1. Under normal costing, the Work in Process account is debited for the total manufacturing
costs of P79,500. The corresponding credit are: the Material account at actual costs of material
used of P45,000, Wages Payable account at actual cost of direct labor P11,500, and Applied
Manufacturing Overhead at estimated amount of P23,000 (P11,500 x 2). Therefore entry (a) is
correct.

2. The computations as follows:

Beginning inventory of materials P275,000

Debits to material account 825,000
Totals
P1,100,000
Ending inventory of materials (275,000+55,000) 330,000
Direct materials issued to production P770,000
3. Computed as follows:

Cost of goods sold P112,000

Add increase in finished goods inventory 8,000
Cost of goods manufactured 120,000
Add increased in work in process inventory 8,000
Total manufacturing cost 128,000
Less: Factory overhead (32,000 x 75%) 24,000
Direct labor cost 32,000 56,000
Cost of raw material used 72,000
Add increase in raw material inventory 1,200
Cost of raw materials purchased P73,200

4. The computation is:

Manufacturing overhead (50% of direct labor) P30,101.80

Direct labor(30,101.80x2) 60,203.60
Total equals 50% of total manufacturing cost 90,305.40
Thus, the cost of raw material used equals 90,305.40
Total manufacturing cost 180,601.80
Add decrease in work in process inventory 590.00
Cost of goods manufactured P181,200.80

5. Computed as follows:

201 202 203 Total

Direct materials P7,000 P5,800 P11,600 P24,400
Direct labor 6,600 6,000 8,400 21,000
Applied manufacturing overhead 5,500 5,000 7,000 17,500
Total cost P19,100 P16,800 P27,000 P62,900

6. Direct material used (Squeeze) P370,000

Direct labor (270,000 /75%) 360,000

Factory overhead applied (1,000,000x27%) 270,000
Total manufacturing cost added 1,000,000
Add beg. Work-in process inventory (Schedule 1) 120,000
Manufacturing cost to account for 1,120,000
Less ending work-in process inventory 150,000
Cost of goods manufactured P970,000
Schedule 1: Let x = ending WIP Inventory

Therefore:
P1,000,000 + .80x - x = P970,000
x = P150,000 (WIP - End)
.80x = P120,000 (WIP - Beg.)

7. The cost of finished Job order Nos. 1001, 1002, 1004 and 1005 is computed below:

Direct material used P37,220

Direct labor 33,725
Manufacturing overhead applied 28,320
Total charges to WIP P99,265
Less ending WIP 43,770
Cost of goods manufactured (finished) P55,495

8. Direct materials P17,000

Direct labor 8,000
Factory overhead (150% x P8,000) 12,000
Total manufacturing costs P37,000
Add WIP, Aug. 1 3,000
Total cost of goods in process P40,000
Less cost of goods manufactured 24,000
Work-in process inventory, Aug. 31 P16,000

9. Work-in process - beginning P4,200

Direct materials 1,000
Direct labor (P5 x 20 hours) 100
Applied manufacturing overhead (P4.50 x 20 hours) 90
Indirect materials (directly identified) 10
Total cost of Job Order No. 210 P5,400

10. The problems indicates that manufacturing overhead is applied to jobs on the basis of direct
labor cost. Department Ms predetermined overhead rate is 300% (600,000/200,000) of direct
labor cost. Department As predetermined overhead rate is 50% (400,000/800,000). The total
manufacturing costs for Job Order No. 432 is:

Direct materials P25,000

Direct labor
Department M P8,000
Department A 12,000 20,000
Manufacturing overhead
Department M (8,000 x 300%) P24,000
Department A (12,000 x 50%) 16,000 30,000
Total manufacturing costs P75,000

11. The first step in the solutions approach is to determined the ending work-in process
inventory, which consists of total costs charged to Job No. 232 to date. The T-account analysis
below indicates an ending work-in process balance of P9,000.

work-in process
3/1 P12,000 P100,000 finished goods
DM 40,000
DL 30,000
OH 27,000
P109,000 P100,000
3/31 balance P9,000

The P9,000 work-in process balance shows that the total cost of Job No. 232 to date is P9,000.
This P9,000 amount consists of direct materials, direct labor and overhead (given, P2,250). The
overhead has been applied at a rate of 90% of direct labor cost, resulting in the equation below:

90% x DL = P2,250
DL = P2,250 90%
DL = P2,250

Knowing both direct labor and manufacturing overhead the amount of direct materials can now
be computed as follows:

Total cost of job P9,000

Less direct labor (P2,250 90%) P2,500
Overhead (given) 2,250
4,750
cost of direct materials P4,250
12. Total debit to work in process account P145,000
Less: Credit to work in process account 125,450
Work in process inventory, April 30 19,550
Less: labor and overhead charged to
Job No. 456: D. Labor P3,000
Job. No. 456: Overhead (P3,000 x 3/4) 2,250
Job No. 789: D. Labor (P2,400 x 4/3) 3,200
Job No. 789: Overhead 2,400 10,850
Materials charged to Job. No. 456 and Job No. 789 P8,700

13. First the cost of goods manufactured is to be computed as follows:

Cost of goods sold (P50,000 x 75/25) P150,000

Add: Increase in finished goods inventory 18,000
Cost of goods manufactured during September 2013 P168,000
NOTE: Since the selling and administrative expense of P25,000 is equal to 12.5% os sales, the
net income of P25,000 is also equal to 12.5% of sales. Therefore, the gross profit (net income
plus selling and administrative expense) is equal to 25% of sales, so that the cost of goods sold
is equal to 75% of sales.

The cost of raw materials inventory on August 31, 2013 can now be derived as follows:

Cost of goods manufactured P168,000

Add: Increase in work in process inventory 15,000
Manufacturing costs to process during Sept., 2013 183,000
Less: Coversion costs:
Direct labor (63,000/.75) 84,000
Factory overhead 63,000 147,000
Raw material used 36,000
Add: Raw materials inventory, Sept. 30, 2013 50,000
Total raw material available for use 86,000
Less: Raw materials purchases 46,000
Raw materials inventory, August 31, 2013 P40,000

14. Direct material used is computed below:

Total manufacturing costs added during 2013 P900,000

Less: Applied manufacturing overhead (900,000 x 25%) 225,000
Prime cost 675,000
Less: Direct labor cost (225,000/.75) 312,000
Direct material used P362,000
Work in process inventory as 12/31/013 is computed as follows:

Work in process inventory, Jan. 1

Total manufacturing cost added in 2013 P900,000
Less: Cost of goods manufactured 850,000
Increase in Work in process inventory 50,000
Divided by 25%
Work in process inventory, Jan. 1, 2013 200,000
Add Increase in Work in process inventory 50,000
Work in process inventory, 12/31/013 P250,00

15. The costs of material charged to Job No. 327 is computed below:

Work in process, Sept. 1 P30,000

Add: Manufacturing cost
Direct Materials P60,000
Direct labor 50,000
Factory overhead 40,000 150,000
Total cost of goods placed in process 180,000
Less: Cost of goods manufactured (completed) 160,000
Work in process, Sept. 30 (charged to Job No. 327) 20,000
Less: Direct labor [4,600(40,000/50,000)] P5,750
Factory overhead 4,600 10,350
Direct materials charged to Job No. 317 P9,650

16. Direct materials P125,000

Direct labor 122,000
Overhead: 75% x P122,000 91,500
Total charged to work in process 338,500
Less: Amount charged to work in process 310,500
Total costs applicable to Job No. 100 28,000
Less: conversion costs of Job No. 100:
Direct labor P10,000
Overhead: 75% x P10,000 7,500 17,500
Direct materials charged to Job No. 100 P10,500
P153,65
18. Cost of goods manufactured 0
Add: Increase in work in process inventory 8,000
Total cost added to production 161,650
Less: Applied overhead (60,000 x 100/75) 80,000
Prime cost (direct material and labor) 81,650

P720,00
19. Cost of goods sold at normal 0
Add: Underapplied overhead allocated to cost of goods
sold:

Cost of goods sold

COGS + WIP + FG X Underapplied
overhead

Therefore:

720,000
720,000 + 54,000 + X 45,000 = 37,500
90,000
Cost of goods sold at actual P757,500
costing

20. The total cost of any manufactured job includes direct material used, direct labor and
factory overhead applied. In Department A, the overhead rate is 300% of direct labor cost, so
direct labor must be P20,000
DL x 200% = OH Applied
DL x 200% = P40,000
DL= P40,000 200% = P20,000
In Department B, the overhead rate is 50%, so overhead applied is 50% of P30,000, or P15,000.
The cost of Job 123 totals P135,000 as computed below:
Direct material used (P25,000 + P5,000) P30,000
Direct Labor (P20,000 + P30,000) P50,000
Overhead applied (P40,000 +P15,000) 55,000
Total manufacturing cost of Job P135,000

21. The problem states that Job 5 is the only Job still in process on April 30, so the total costs
charged to the Job must be equal the ending balance of the work process inventory as
computed below:

Work in Process
Beg. Balance P4,000 P48,000 FG
DM 24,000
DL 16,000
MO 12,800
56,800 48,000

Ending Balance P8,800

Therefore the cost of direct materials is P5,200 [P8,800- (P2,000 + P1,600)]

22. Direct materials P 75,000

Direct labor(P40,000 + P100,000 x P20,000) 160,000

Applied overhead [(P 160,000 x ( P900,000/ 3,200,000)] 45,000

Total manufacturing cost P280,000

23. Direct materials P1,700,000

Direct labor 160,000
Applied overhead (P800,000 x 150%) 45,000
Total manufacturing cost 3,700,000
Add: Work in process, beginning 300,000

Total cost of goods placed in process 4,000,000

Less: Cost of goods manufactured 2,400,000
Work in process, end P1,600,000

24. Raw materials purchased P1,290,000

Less: Increase in raw materials inventory 45,000
Cost of raw materials used P1,245,000

Note: Freight out is irrelevant for this question because freight out is a selling expense, thus, it
would not be used in the computation.

25. Direct materials (P5,000 + P3,000) P 8,000

Direct Labor
Dept. A (400 X P4) 1,600
Dept B (200 X P5) 1,000 2,600
Production overhead
Dept. A (400 X P4) 1,600
Dept B (200XP4) 800 2,400
Total production cost P13,000
Administrative and other overhead
(P13,000 x 20%) 2,600
Total manufacturing cost P15,600
Therefore selling price is P20,800 (15,600 75% )

26. Direct materials (P90,000 x 60%) P54,000

Direct labor (360 x P18) 6,480
Variable overhead (360 x 10) 3,600
Actual cost of East P64,080

27. To compute the answer statement of cost of goods manufacturing and sold is prepared as
follows:

Direct material used P60,000

Direct labor [(8000 hours x P5.60) + (4,600 hours x P6.00)] 72,400

Applied manufacturing overhead [(8,000 x P6.00) + (4,600 hours x
P8.00 84,800

Manufacturing costs 217,200

Beginning work in process 15,000

Total 232,200

Ending work in process 17,600

Cost of goods manufactured 214,600

Beginning finished goods inventory 22,000

Cost of goods available for sale 236,600

Ending finished goods inventory 17,000

Cost of goods sold at normal costing 219,600

28.
Cost of goods manufactured P515,000

Beginning finished goods Jan 1 65,000

Total 580,000
Ending finished goods Jan 31
 50,000

Cost of goods sold actual (before adjustment) 530,000

Over-applied overhead (P150,000 - P144,000) (6,000)

Cost of goods sold actual 524,000

29. If spoilage loss is charged to all production , the cost of good shoes in Job 501 would be ab
the full unit cost of P56,which includes the normal spoilage allowance. Because the factory
overhead of P18 per unit includes an allowance of P1 per unit over the entire production.

If spoilage loss is charged o this specific Job 501,spoilage is a function of specific job
requirements rather than general factory condition. Then, the overhead rate should not include
the P1 allowance for spoiled work. Therefore the cost of all shoes, before adjustment for
spoilage is P55 (56-1). The cost of the 2,000 good shoes on Job 501 would be the total cost of all
2,200 shoes less the scrap value of bad shoes.

Cost of 2,200 shoes (2,200 x P55) P121, 000

Scrap value of bad shoes ( 6,000)
Net cost of Job 501 P115,000

Cost per good shoes

(115,000 /2,000) P57.50

Note that the net cost of spoilage[ (200 x 55)- 6,000] is charged to the good shoes in Job 501. In
this case, the net spoilage cost is included in the charge to finished goods along with the cost of
good units.

30.
Original Cost (charged to work in process) P 2,660
Rework cost:
Direct materials P100
Direct labor 160
Factory overhead (150% x P 160) 240 500
Total cost P 3,160
Divided by number of units 200
Unit cost of Job order III P15.80

31.
Original cost P2,660
Divided by number of units 200
Unit cost P13.30

The total network cost is charged to Manufacturing Overhead control account.

32. Original cost ( 1,100 units x P30) P33,000

Rework cost of detective units 500

Proceeds from sale of spoiled units (1,500)

Total cost P32,000
Divide by goods units (1,100 units - 100 spoiled units) 1,000
Unit cost P32

33. Rework cost

Direct materials P5,000

Indirect materials 300

Direct labor 14,000

Applied manufacturing overhead (14,000 x 150%) 21,000

Total P40,300

The total rework cost as computed above should be charged to manufacturing overhead
control account since the overhead budget includes an allowance for rework.

34. Since the cost of service department costs is allocated directly to producing departments,
then the direct method is to be used. Under this method, no allocation of services rendered to
other service department is made. Therefore, the P20,000 is allocated to Producing
Department as follows:

Producing A (20,000 x 40 %/80%) 10,000

Producing B ( P20,000 x 40%/ 80%) 10,000

35. Allocated to Department B:

From department 1 cost (P150 x 20/60) P50.00

From department 2 cost (P300 x 10/80) 37.50
Total P 87.50

36.
Direct cost P5,000
Allocated cost
From department 1 (P150 x 40/60) P100
From department 2 (P300 x 70/80) 262.50 362.50
Total cost of Dept A P5,362.50

37. Under the step down method the service department with the highest costs is to be
allocated first. The allocation is as follows:

Service Operating
Departments Departments
1 2 A B
Direct costs P150 P300
Allocation of:

Department 2 cost ; 20:70:10 60 (300) P210 P30

Department 1 cost; 40:20 (210) 140 70

Total P350 P100

The cost allocated to Department B is therefore P100.

38.
Direct costs P5,000
Allocated costs (refer to number 37) 350
Total cost of Dept A P5,350

39. The allocation of cost of Service Department costs to Operating Departments under the
Reciprocal Method is shown below:

Service Operating
Departments Departments
1 2 A B
Direct costs P150 P300
Allocation of Dept. 1, 40:40:20 (150) 60 P60 P30
Allocation of Dept. 2, 20:70:10 72 (360) 252 36
Allocation of Dept. 1, 40:40:20 (72) 28.80 28.80 14.40
Allocation of Dept. 2, 20:70:10 5.76 (28.80) 20.16 2.88
Allocation of Dept. 1, 40:40:20 (5.76) 2.30 2.30 1.16
Allocation of Dept. 2, 20:70:10 .46 (2.30) 1.61 .23
Allocation of Dept. 1, 40:40:20 (.46) .18 .18 .10
Allocation of Dept. 2, 20:70:10 .04 (.18) .13 .01
Allocation of Dept. 1, 40:40:20 (.04) .02 .02 -
Allocation of Dept. 2, 20:70:10 - (.02) .02 -
Total allocated cost P365.22 P84.78

An alternative way to implement reciprocal allocation is to formulate and solve linear

equations. This requires three steps as follows:

Step 1: Let D1 be the complete reciprocated costs of Department 1 and D2 the complete
reciprocated costs of Department 2. We then express the data as follows:

D1 = P150 + .20D2
D2 = P300 + .40D1

The .20 D2 in equation (1) is the percentage of Department 2 services used by Department 1.
The .40 D1 in equation (2) is the percentage of the Department 1 used by Department 2. By
complete reciprocated costs in equations (1) and (2), we mean the Department 1s own costs
plus any interdepartmental cost allocations.

Step 2: Solve the Set of Linear Equations to Obtain the Complete Reciprocated Costs of Each
Service Department. Substituting equation (2) into (1):
D1 =P150 = [.20(P300 + .40D1)]
D1 =P150 + 60 + .08D1
.92D1 = P210
D1 = P228.26
Substituting into equation (2)
D2 =P300 + .40(P228.26)
D2 =P300 + 91.30
D2 =P391.30
Step 3: Allocate the Complete Reciprocated Costs of Each service Departments to All Other
Departments (Both Service Departments and Operating Departments) on the Basis of the Usage
Percentages. The allocation is as follows:

Service Operating
Departments Departments
1 2 A B
Direct costs P150 P300
Allocation of Dept. 1, 40:40:20 (228.26) 91.30 P91.30 P45.65
Allocation of Dept. 2, 20:70:10 78.26 (391.30) 273.91 39.13
Total allocations P365.21 P84.78

40. Total cost of Department A:

 Direct costs P5,000
Allocated costs 365.22
Total P5.365.22

41. The correct answer is (d). the reciprocal method allocates service department costs to
other service departments as well as to production departments by means of simultaneous
equations, as shown below. Thus, total service cost allocated to PP2 is P23,051 [(40% x
P31,224) + (50% x P21,122)].
SS1 = P27,000 + .2 SS2
27,000 + [.2 (18,000 + .1 SS1)]
27,000 + 3,600 + .02 SS1
.98 SS1= P30,600
SS1= P31,224

SS2= P18,000 + .1 (P31,224)

= P21,122

42. The correct answer is (a). Prime cost is equal to direct materials plus direct labor. The first
step is to compute the cost of raw materials used during the month as follows:
Beginning materials inventory P67,000
Purchases 163,000
Transportation-in 4,000
Purchases returns and allowances ( 2,000)
Materials available for use 232,000
Ending materials inventory ( 62,000)
Materials used P170,000

Adding the P170,000 of materials used to the P200,000 of direct labor results in a total of
P370,000.

43. The correct answer is (b). The computation is:

Cost of goods manufactured:

Prime cost (No.44) P370,000
Applied overhead (70%of P200,000) 140,000
Manufacturing cost 510,000
Work-in-Process, Nov.1 145,000
Work-in-Process, Nov.30 (171,000)
Cost of goods manufactured 484,000
Finished goods inventory, Nov.1 85,000
Finished goods inventory, Nov.30 ( 78,000)
Cost of goods sold P491,000
44. The correct answer is (c). The computation is:
Actual factory overhead P132,000
Applied factory overhead 140,000
Overapplied overhead (credit) P 8,000

45. The correct answer is (a). the direct method allocates service department costs directly to
the producing departments without recognition of services provided among the service
departments. Hence, no service cost is allocated to the Tool Department because it is a service
department.

46. The correct answer is (b). Under the step-down method, cost are allocated to all
departments. However, no reciprocal allocations are allowed. The process may begin with the
department that supports the greatest number of departments that incurs the largest costs, or
that provides the greatest percentage of its services to other service departments. Thus, the
Repair Department is the logical starting point. Given that service costs allocated to each
department (service or production) on the basis of its proportion of employees (excluding
employees in the allocating department). The allocation of the Repair Departments overhead
to the Tool Department is P875 {P35,000 x [1 employee / (1+2+25+12)]}.

47.The unit cost is P18 as computed below:

Total manufacturing costs P540,000
Cost of spoiled units (30,000 x 4%) x P540,000/30,000 ( 21,600)
Cost of the good units (30,000 x 96%) 28,800 P518,400
Unit cost (P518,400 / 28,800 units) P 18

48. Letter (a) is correct. The unit selling price is computed as follows:
Total manufacturing costs P540,000
Scrap value of spoiled units (30,000 x 4%) x P15 ( 18,000)
Cost of good units P522,000
Selling price (522,000 x 14%) P730,800
Unit selling price (P730,800/28,800 units) P 25,375

49. Choice (c) is correct. The computation is:

Total manufacturing costs:
Materials (200 x 400) P40,000
Labor (200 x 175) 35,000
Applied overhead (160% X 35,000) 56,000
Total P131,000
Unit cost (P131,000/200) P 655

50. Choice (c) is correct. The unit cost is computed as follows:

Total manufacturing costs:
Materials P40,000
Labor 35,000
Applied overhead (150% X 35,000) 52,500
Total manufacturing costs P127,500
Rework cost:
Materials (15 x 50) 750
Labor (15 x 80) 1,200
Overhead (150% x 1,200) 1,800 3,750
Total cost P131,250
Unit cost (P131,250/200) P 656.25