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UNIVERSITY OF SANTO TOMAS

AMV-COLLEGE OF ACCOUNTANCY
COST ACCOUNTNG AND CONTROL
MMD

Problem A

Sound of Music Co. has a job order costing system. The following items appeared in the Work in
Process Inventory account during April, 2018:

April 1, 2018, balance $20,000


Materials placed into ?
production
Direct labor (4,000 hours) $120,000
Factory overhead applied $ 96,000
Cost of goods $400,000
manufactured
April 30, 2018, balance $ 16,000

Sound of Music applies overhead to production on the basis of direct labor hours. Job XX, the only job in
process on April 30, has been charged $10,600 materials cost and has 100 labor hours of direct labor time
assigned to it.
Required:
a. Determine the predetermined factory overhead rate for Sound of Thunder Company.
b. Determine the amounts of materials, direct labor, and factory overhead included in the April 30, 2018,
work in process.
c. Determine the amount of materials placed into production during April 2018.

ANSWER: a. Factory overhead rate = $96,000 / 4,000 =


$24 per direct labor hour
b. Costs assigned to Job XX:
materials $10,600
direct labor (100 × $30*) = 3,000

factory overhead applied (100 × $24) = 2,400


work in process, April 30, 2018 = $16,000
* $120,000 / 4000 = $30 per hour
c. $X + $120,000 + $96,000 + $20,000 − $16,000 = $400,000 X = $180,000

Problem B

Matriarch Incorporated uses a job-order costing system and a predetermined overhead rate based
on machine hours. At the beginning of the year, the company estimated manufacturing overhead
for the year would be $240,000 and machine hours would be 8,000. The following information
pertains to November of the current year: Job 10
J 10 J11 J12 Total
WIP 11-1 $16,000 $26,000 $38,000 $80,000

November production activity:


Materials $ 4,000 $ 4,800 $ 7,200 $16,000
requisitioned

DL cost $ 2,400 $ 3,600 $ 4,000 $10,000

Machine hrs 400 700 900 2,000


Labor hrs 120 180 200 500

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Actual manufacturing overhead cost incurred in November was $61,000.
Required:
a. Compute the predetermined overhead application rate.
b. Determine the total cost associated with each job.
c. If jobs 10 and 12 were completed, prepared the journal entry to move the cost.
d. If job 10 was delivered to customers that paid $50,000 cash, prepare the journal
entries. What is the gross profit for job 10?
e. Assuming no beginning work in process, what is the cost assigned to ending work
in process?
f. Assuming no beginning finished goods what is the cost assigned to ending finished
goods? g. How much was overhead over/underapplied?

ANSWER: a. $240,000 / 8,000 = $30

b. Job 10 Job 11 Job 12 Total


Work-in- $16,000 $26,000 $38,000 $80,000
process, Nov.
1
November production activity:
Materials $ 4,000 $ 4,800 $ 7,200 $16,000
requisitioned
Direct labor $ 2,400 $ 3,600 $ 4,000 $10,000
cost
Overhead applied:
Machine hours
400 × $30 12,000
700 × $30 $21,000
900 × $30 $27,000
Total 34,400 55,400 76,200

c. Finished goods $110,600


Work in process $110,600
job 10 + job 12 = 34,400 + 76,200 = $110,600 (the cost of goods manufactured)
d. record a sale
Cash $50,000
Sales $50,000
Cost of goods sold $34,400
Finished
goods 34,400
Sales
$50,000
CGS 34,400
Gross Profit $15,600

g. Actual overhead $61,000


Applied overhead (12,000 + 21,000 + 27,000 ) =
$60,000
Underapplied overhead $ 1,000

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Problem C
Slytherin Company completed the following transactions with respect to its manufacturing operations
during October 2018:

A. Materials costing $140,000 and indirect materials costing $16,800 were purchased on
account. Assume indirect materials was debited to materials.
B. A total of $70,000 of materials was requisitioned to the factory for manufacturing
operations conducted during October.
C. Manufacturing payroll for the month consisted of 2,000 hours of direct labor and 500
hours of indirect labor, both at $14 per hour.
D. Indirect materials costing $7,000 were requisitioned.
E. Depreciation on the factory building and equipment was $14,000.
F. Miscellaneous factory overhead expenses totaled $5,600 for October.
G. Factory overhead cost was applied to work in process at the rate of 125 percent of direct
labor costs.
H. Units of product with a total manufacturing cost of $84,000 were completed and
transferred to the finished goods warehouse.
I. Units of product with a total manufacturing cost of $84,000 were completed and
transferred to the finished goods warehouse.

Required: Prepare journal entries for each of the transactions that occurred during
October 2018.

Answer: (Kindly fix the format of the journal entries, they are not shown in their proper debits
and credits.)

a. Materials 156,800
Accounts Payable 156,800
b. Work-in-Process 70,000
Materials 70,000
c. Work-in-Process (2,000 × 28,000
$14)
Factory Overhead (500 × $14) 7,000

Wages Payable 35,000


d. Factory Overhead 7,000
Materials 7,000
e. Factory Overhead 14,000
Accumulated Depreciation 14,000
f. Factory Overhead 5,600
Various Accounts 5,600
g. Work-in-Process (28,000 × 35,000
125%)
Factory Overhead 35,000
h. Finished Goods 84,000
Work-in-Process 84,000
i. Cash 77,000
Sales 77,000
Cost of Goods Sold 49,000
Finished Goods Inventory 49,000

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Problem D

Lowland Corporation is a job order costing company that uses activity-based costing to apply overhead to jobs. The
following overhead activities were budgeted for the year.

Activity Cost Driver Amount of driver


setups $120,000 number of setups 6,000
purchasing 80,000 number of parts 20,000
other overhead 150,000 direct labor hours 75,000

The following information about the jobs was given for September:

Job 1001 Job 1002 Job 1003 Job 1004


Balance 9/1 $44,900 $60,700 $30,500 0
direct materials 54,000 37,000 25,000 41,000
direct labor 80,000 38,500 43,000 71,000
number of 40 10 30 200
setups
number of parts 300 180 400 500
direct labor 5,000 2,400 5,200 1,200
hours

By September 30, Jobs 1001 and 1003 were completed and sold. The remaining jobs were still
in process.

Required:
1. Calculate the activity rates for each overhead activity.
2. Calculate the cost of each job for September 30.
3. What is the beginning work in process on September 1 and October 1?
4. What is the cost of goods manufactured?
5. What is the cost of goods sold?
6. Draw the T account for work in process. (include all debits and credits) Prepare the Statement of the
Cost of Goods Manufactured.

Answers:

1.

Activity Cost Amount of Driver Activity rate


setups $ 120,000 6,000 $ 20
purchasing 80,000 20,000 4
other overhead 150,000 75,000 2

2.

Job 1001 Job 1002 Job 1003 Job 1004 Total


Balance 9/1 $ 44,900 $ 60,700 $ 30,500 0 136,100
dm 54,000 37,000 25,000 41,000 157,000
dl 80,000 38,500 43,000 71,000 232,500
# setups $20 ( 40) 800 (10) 200 (30) 600 (200) 4,000 5,600

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# parts $4 (300) 1,200 (180) 720 (400) 1,600 (500) 2,000 5,520
dlhours $2 (5,000) 10,000 (2,400) 4,800 (5,200) (1,200) 2,400 27,600
10,400
TOTAL $190,900 $141,920 $111,100 $120,400 $564,320
3.

BWIP = $136,100
EWIP 9/30 = BWIP 10/1 = jobs 1002 + 1004 = $141,920 + $120,400 = $262,320
4. CGM = jobs 1001 + 1003 = $190,900 + $111,100 = $302,000
5. CGS = jobs 1001 + 1003 = $190,900 + $111,100 = $302,000

6.

WIP
BI 136,100 302,000
COGMA
DM 157,000
DL 232,500
MOH 38,720
EI 262,320

STATEMENT OF COST OF GOODS MANUFACTURED


Lowland Corporation
Month of September
Direct materials used in $157,000
production
Direct labor 232,500
Manufacturing overhead 38,720
applied
Total manufacturing costs 428,220
added
Add: beginning work in 136,100
process
Less: ending work in process 262,320
Cost of Goods manufactured 302,000

PROBLEM E
The next three questions are based on the following information:

M Company wishes to allocate the costs of its support departments, Housekeeping (HK) and
Maintenance (MN) to its production departments, Machining and Finishing. The following
information is provided:

HK MN Machining Finishing Total


Overhead costs $35,000 $20,000$200,000 $100,000 $355,000

The company plans to use budgeted service hours as the allocation base and provides the
following information:
S e r v i c e s P r o v I d e d T o:
HK MN Machining Finishing Total
Service provided by HK — 7,000 21,000 7,000 35,000
Service provided by MN 10,000 — 18,000 12,000 40,000

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1. (LO.5) If the direct method of allocating support department costs is used, the total service costs
allocated to the Finishing Department would be:
a. $8,000.
b. $8,750.
c. $12,000.
d. $16,750.

2. (LO.5) If the step-down method of allocating support department costs is used, how much
Maintenance Department costs would be allocated to the Finishing Department if the allocation
process begins with Housekeeping?
a. $7,000
b. $10,800
c. $16,200
d. $20,000

3. (LO.5) If the reciprocal method of allocating service costs is used, what total amount of
Housekeeping costs (rounded to the nearest dollar) will ultimately be allocated to the other
departments?
a. $42,105
b. $35,000
c. $33,684
d. $28,421

1. d (CMA Adapted)

HK to Finishing: $35,000 x 7/(21+ 7) = $ 8,750


MN to Finishing: $20,000 x 12/(18+12) = $ 8,000
Total allocation to Finishing = $16,750

2. b (CMA Adapted)

HK to MN: $35,000 x (7/35) = $7,000;


Therefore:
MN = $20,000 + $7,000 = $27,000
MN to Finishing: $27,000 x (12/30) = $10,800

3. a (CMA adapted)
HK = $35,000 + .25MN; MN = $20,000 + .2HK
Therefore:
HK = $35,000 + .25($20,000 + .2MN)
HK = $35,000 + $5,000 + .05HK
.95HK = $40,000
HK = $42,105

PROBLEM F
The next two questions are based on the following information:

P Company is considering using activity-based costing instead of its traditional costing system
because it believes its current system may be providing misleading information. The following
data shows the budgeted manufacturing overhead.

Budgeted Budgeted
Activity Cost Driver Activity Cost
Materials handling No. of parts handled 6,000,000 $720,000
Setup costs No. of setups 750 315,000
Machining costs Machine hours (MH) 30,000 540,000
Quality control No. of batches 500 225,000
Total overhead cost $1,800,000

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The company also estimates that it will work 50,000 direct labor hours in the coming year. The
following information is provided for one of the company’s products for the coming year:

Direct material and Direct Labor


Direct materials cost per unit $4.40
Direct labor cost per unit
.05 DLH @ $15/DLH .75
Total $5.15

Sales and production data:


Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hour required 80 MH per batch

1. (LO.4) If the organization uses a traditional full cost system, the cost per unit of this product for
the coming year will be
a. $6.95.
b. $6.11.
c. $5.44.
d. $5.39.

2. (LO.4) If the organization uses an activity-based cost system, the cost per unit of this product for
the coming year will be
a. $6.30.
b. $6.21.
c. $6.08.
d. $6.00.

Answers:

1. b (CMA Adapted)
The overhead rate is $1,800,000 ÷ 30,000 machine hours = $60 per MH.
$60 per MH x 80 MH per batch = $4,800; $4,800 ÷ 5,000 units per batch = $.96 per unit.
Therefore, the full unit cost is = $6.11 ($4.40 + $0.75 + $0.96)

2. a (CMA Adapted)
Materials handling cost per part is $720,000 ÷ 6,000,000 = $.12
Cost per setup is $315,000 ÷ 750 = $420
Machining cost per hour is $540,000 ÷ 30,000 = $18
Quality cost per batch is $225,000 ÷ 500 = $450
Therefore, total manufacturing overhead applied is as follows:
(5 parts per unit x 20,000 units x $.12) = $12,000
+ (4 batches x 2 setups per batch x $420) = $ 3,360
+ (4 batches x 80 machine hours per batch x $18) = $ 5,760
+ (4 batches x $450)] = $ 1,800
Total overhead $22,920
Overhead per unit ($22,920 / 20,000) $1.146
Therefore, the full unit cost is $6.296 ($4.40 + $0.75 + $1.146)

PROBLEM G

M Corporation manufactures a specialty line of jeans using a job-order-cost system. During May,
the following costs were incurred in completing Job M1: direct materials, $13,700; direct labor,
$4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per
machine hour, and Job M1 required 800 machine hours. If Job M1 resulted in 7,000 good jeans,
the cost of goods sold per unit would be
a. $5.50.
b. $6.30.
c. $5.70.
d. $8.50.

a (CMA Adapted)

($13,700 + $4,800 + (800 x $25) = $38,500; $38,500 / 7,000 = $5.50

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PROBLEM H
Q Company uses a normal cost system. The following information is from its financial records for
the year:
Total manufacturing costs, $2,500,000
Cost of goods manufactured, $2,425,000
Applied overhead, 30% of total manufacturing costs
Predetermined OH rate, 80% of direct labor cost

Assuming the company’s work in process inventory at January 1 was 75 percent of its December
31 work in process inventory, what is the carrying value of the company’s work in process
inventory at December 31?
a. $75,000
b. $100,000
c. $225,000
d. $300,000

d (CMA Adapted)
$2,500,000 + .75X – X= $2,425,000
2,500,000 – .25X = $2,425,000
$75,000 = .25X
= $300,000

PROBLEM I

The Teal Company manufactures customized fabric yarns on a job-order basis. Job 450 is an order for
150 units. It requires the following:
Direct materials $4,000
Direct labor ($10/hr) 2,000
Overhead (150 percent of direct labor cost) 3,000
After inspection, 3 units required rework which required 6 additional direct labor hours and $50 of
materials.
If the spoilage was considered normal, what is the cost of job 450?
a. $9,000
b. $5,000
c. $7,000
d. $11,000

ANSWER: a
RATIONALE: Direct materials $4,000
Direct labor 2,000
Manufacturing overhead 3,000
Total cost $9,000
Rework is charged to manufacturing overhead (MOH).

PROBLEM J
The Omega Company manufactures customized motors on a job-order basis. Job 492 is an order for 100
units. It requires the following:
direct materials $3,000
direct labor ($10/hr) 1,000
overhead (150% DL$) 1,500
After inspection, 2 units required rework which required 8 additional direct labor hours and $60 of
materials.
If the rework is considered normal spoilage, what is the journal entry for overhead control?

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a. no journal entry is needed
b. materials $60
payroll $80
overhead control $140
c. overhead control $140
materials $60
payroll $80
d. none of the above
ANSWER: c
RATIONALE: overhead control $ 140
materials $60
payroll $80

PROBLEM K
The Omega Company manufactures customized motors on a job-order basis. Job 492 is an order for 100
units. It requires the following:
direct materials $3,000
direct labor ($10/hr) 1,000
overhead (150% DL$) 1,500
After inspection, 2 units required rework which required 8 additional direct labor hours and $60 of
materials.
If the rework is considered abnormal spoilage, what is the journal entry for overhead control?
a. no journal entry is needed
b. materials $ 60
payroll $80
overhead control $140
c. overhead control $ 140
materials $60
payroll $80
d. none of the above
ANSWER: A
RATIONALE: overhead control $ 140
materials $60
payroll $80

PROBLEM L
The Omega Company manufactures customized motors on a job-order basis. Job 492 is an order for 100
units. It requires the following:
direct materials $3,000
direct labor ($10/hr) 1,000
overhead (150% DL$) 1,500
After inspection, 2 units required rework which required 8 additional direct labor hours and $60 of
materials.
If the rework is considered abnormal spoilage, what is the cost of job 492?
a. $5,500
b. $5,760
c. $3,140
d. $5,640
ANSWER: b
RATIONALE: DM $3,000 + $60 = $3,060
DL $1,000 + $80 = 1,080
MOH $1,500 + $120 = $1,620
Total $5,760

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PROBLEM M
The estimated unit cost for a company planning to produce and sell at a level of 12,000 units per
month is as follows:
Estimated
Cost Item Unit Cost
Direct material $20
Direct labor 32
Variable manufacturing overhead 6
Fixed manufacturing overhead 12
Variable selling 4
Fixed selling 4
What is the total estimated conversion costs per unit?
a. $70
b. $58
c. $52
d. $50
Answer D

PROBLEM N
W Company is working on its annual profit plan for the coming year. The company wants to
determine the cost behavior pattern of its maintenance costs. The prior year’s data regarding
maintenance hours and costs are as follows.
Hours of Maintenance
Activity Costs
January 480 $ 4,200
February 320 3,000
March 400 3,600
April 300 2,820
May 500 4,350
June 310 2,960
July 320 3,030
August 520 4,470
September 490 4,260
October 470 4,050
November 350 3,300
December 340 3,160

Using the high-low method, estimate the amount of maintenance cost per hour.
a. $2,781
b. $570
c. $7.50
d. $0.13

c (CMA Adapted) Unit variable cost = ($4,470 - $2,820) / (520 – 300) = $7.50

PROBLEM O
X Company uses simple regression to separate its selling costs (y) into fixed and variable
components based on units sold (x). A computer software program generated the following
regression analysis results:
Average x 400
Average y 3600
a 684.65
Standard error of a 49.515
b 7.2884
Standard error of b 0.12126
Std error of the estimate 34.469
r2 0.99724
What equation should X Company use to estimate its selling costs?
a. y = $3,600 + 400x
b. y = $684.65 + 7.2884x
c. y = $3,600 + 7.2884x
d. y = $684.65 + .12126x
answer b

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