prelim exam wth solution

1. The books of Matulungin Manufacturing Co. showed the following data for the month of October 2014:

Opening and closing inventories:Oct. 1Oct. 31 Raw Materials . P16,000 P17,200Work-in Process . 16,000 24,000Finished Goods 28,000 36,000

Direct labor cost, P32,000Factory overhead, 75% of direct labor cost.Cost of Goods Sold, P112,500

What is the cost of materials purchased during the month?

a. P87,200b. P73,200c. P72,000d. P71,200

2. Border Company has the following data on April 30, 2014:April manufacturing overhead ..P30,101.80Decrease in ending inventories:Materials .. 2,430.00Goods in Process . 590.00

Increase in ending inventory:Finished Goods 1,320.40

The manufacturing overhead amounts to 50% of direct labor, and the direct labor and manufacturing combined equal 50% of the total cost of manufacturing. All materials are purchased F.O.B. shipping point.

What is the cost of goods manufactured?

a. P180,610.80b. P181,200.80c. P182,300.80d. P183,200.80

3. Trackside Co. employs a job order cost system. Its manufacturing activities in July 2014, its first month of operation, are summarized as follows: JOB NUMBERS

201202203204Direct materials .. P7,000 P5,800 P11,600P5,000Direct labor cost . P6,600 P6,000 P 8,400P2,400Direct labor hours . 1,100 1,000 1,400 400Units produced 200 100 1,000 300

Manufacturing overhead is applied at a rate of P2 per direct labor hour for 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. P62,900b. P62,500c. P72,900d. P65,900

4. The Helper Corporation manufactures one product and accounts for cost by a job-order cost system. You have obtained the following information for the year ended December 31, 2014 from the corporations books and records:

Total manufacturing cost added during 1997 based on actual direct materials, actual direct labor and applied factory overhead on actual direct labor cost . P1,000,000

Cost of goods manufactured based on actual direct materials and direct labor and applied factory overhead 970,000

Applied factory overhead to work in process based on direct labor cost 75%

Applied factory overhead for the year, based on total manufacturing cost 27%

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, 2014?

a. P370,000b. P970,000c. P990,000d. P970,500

5. The company uses a job order cost system. The following data were obtained from the companys 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 HoursDirect Labor Cost

1001P 4,320 1,300 P 1,600 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 month totaled P30,350. During June, Job Order Nos. 1001, 1002, 1004 and 1005 were completed. Jobs 1001 and 1002 were shipped out and the costumers were billed P9,000 for Job 1001 and P20,000 for Job 1002.

The cost of goods manufactured would be:

a. P55,500b. P55,495c. P56,495d. P57,500

6. The Glen Manufacturing Company manufactures a product exclusively to customer order, employing a job order cost system.

On August 1, 2014, 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 totaled P17,000 and direct labor cost were P8,000. At the beginning of the year, 2014, a predetermined overhead rate of 150% of expected direct labor cost was established.

The August 31, 2014 work in process inventory is:

a. P 4,000b. P14,000c. P16,000d. P20,000

7. 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 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 for variable overhead.

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

The total cost of Job Order No. 210 is:

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

8. Tillman Company uses a job-order cost system and has two production departments, M and A, Budgeted manufacturing costs for 1997 are as follows:

Department Department MADirect materials .. P700,000 P100,000Direct labor 200,000 800,000Manufacturing Overhead 600, 000 400,000

The actual material and labor costs charged to Job No. 432 during 1980 were as follows:

Direct material . P25,000Direct labor:Department M ..P 8,000Department A 12,000 20,000Tillman 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 1980 should be:

March 1, balance .. P 12,00031, direct materials 40,00031, direct labor .... 30,00031, direct overhead ... 27,00031, to finished goods . ( 100,000 )

Worrel applies 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 1997, has been charged with factory overhead of P2,250. What was the amount of direct materials charged to Job no. 232?

a. P2,250b. P2,500c. P4,250d. P9,000

9. The work-in-Process account of the Malinta Company which uses a job order cost system follows:

Work-In-Process____________________________________________________________________________________ April 1 Balance P25,000Finished Goals . P125,450 Direct Materials 50,000 Direct Labor . 40,000 Fac. Overhead Applied 30,000

Overhead is applied to production at a predetermined rate, based on direct labor cost. The work in process at April 30 represents the cost of Job No. 456, which has been charged with applied overhead of P2,400.The cost of direct materials charged to Job No. 456 and Job No. 789 amounted to:

a. P.8,700b. P7,600c. P4,500d. P4,200

10. The following data were taken from the records of Charming Company:

08/31/1409/30/14 Inventories: Raw materials .. P ? P50,000Work in process .. 80,000 95,000Finished 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 1997, P25,000.

What is the cost of raw materials inventory on August 31, 2014?

a. P30,000b. P40,000c. P46,000d. P50,000

11. Mayon Corporation manufactures rattan furniture 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, 1997:

The work in process inventory on January 1 was 20% less than the work in process inventory on December 31.

The total manufacturing costs added during 1997 was P900,000 based on actual direct materials and direct labor but with manufacturing overhead applied on actual 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 costs of the goods manufactured, also based on actual direct materials 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, 1997 are:

Direct materials Used WIP inventory, 12/31/97

a. P1,075,000P200,000 b. P 362,500P250,000 c. P 312,500P250,000 d. P1,100,000P275,000

12. The Diamond Company uses a job order cost accounting system. Overhead is applied to production at a predetermined rate based on direct labor cost.

The following postings appear in the ledger accounts of the company for the month of September 1997:

DebitWork in process, Sept. 1 .. P30,000Direct materials ..60,000Factory overhead ..40,000Direct labor .50,000

On September 30, 1997, finished goods completed, from work in process cost P160,000.

Job No. 327 was the only job completed in September, and it has been charged P4,600 for factory overhead.

Direct materials charged to Job No. 327 was:

a. P10,350b. P14,650c. P 9,650d. P25,000

13. Variety Factory uses a job order cost system. Per company records, the total charges to work-in-process in March 1997 were as follows:

Direct materials . P125,000Direct labor .. 122,000Overhead 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 March 31, 1997 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. P20,500b. P14,875c. P10,500d. P15,000

14. Marilag Company had the following inventories:

April 1April 30Direct materials ... P 36,000 P45,000Work in process ...18,000 26,000Finished goods ..54,000 72,000

The following information were available for April 1997:

Direct labor P 60,000Direct labor rate per hour P7.50Overhead rate per direct labor hour 10.00Cost of goods manufactured . 153,650

What is the prime cost during April 1997?

a. P81,650b. P80,000c. P90,000d. P96,000

15. Worley Company has underapplied overhead of P45,000 for the year ended December 31, 1997. Before disposition of the underapplied overhead, selected December 31, 1997 balances from Worleys accounting records are as follows:

Sales . P1,200,000Cost of goods sold .... 720,000Inventories:Direct materials . 36,000Work in process . 54,000Finished 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 1997 income statement, Worley should report cost of goods sold of

a. P682,500b. P684,000c. P756,000d. P757,500

16. Blackwood uses a job order cost system and applies factory overhead to production order on the basis of direct-labor cost. The overhead rates for 1997 are 200% for Department A and 50% for Department B. Job 123, started and completed during 1997, was charged with the following costs:

Department ABDirect materials . P25,000P 5,000Direct labor ........ ? 30,000Factor overhead ... 40,000 ?

The total manufacturing cost associated with Job 123 should be

a. P135,000b. P180,000c. P195,000d. P240,000

17. Birk Co. uses a job order cost system. The following debits (credit) appeared in Birks work-in-process account for the month of April 1997:

AprilDescription Amount 1Balance P 4,00030Direct materials 24,00030Direct labor 16,00030Factory Overhead 12,80030To finished goods ( 48,000 )

Birk applies overhead to production at a predetermined rate of direct labor costs. Job No. 5, the only job still in process on April 30, 1995 has been charged with direct labor of P2,000. What was the amount of direct materials charged to Job No. 5?

a. P 3,000b. P 5,200c. P 8,800d. P24,000

18. National Marketing Corp. uses a job-order cost system. It has three production departments, X, Y and Z. The manufacturing budget cost for 1997 is as follows:

Dept. XDept. YDept. Z

Direct Materials P600,000.00 P400,000.00 P200,000.00Direct Labor 200,000.00 500,000.00 400,000.00Mfg. Overhead 600,000.00 100,000.00 200,000.00

For Job No. 01-90 completed in 1997, direct material cost was P75,000.00; direct labor, Dept. X, P40,000.00, Dept. Y, P100,000.00, Dept. Z, P200,000.00. 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 manufacturing budget cost.

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

a. P235,000b. P310,000c. P280,000d. P150,000

19. RV 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 partiallycompleted jobs) .. P300,000Orders completed (18) .2,400,000Orders shipped (14) 2,000,000Materials requisitioned for the month . 1,700,000Direct labor cost ... 800,000Overhead rate . 150 of direct labor cost

The ending work in process inventory was:

a. P1,600,000b. P1,400,000c. P 300,000d. P 700,000

20. The accounting records for 1997 of Wagner Music Co. showed the following:

Increase in raw materials inventory .P 45,000Decrease in finished goods inventory . 150,000 Raw material purchased .. 1,290,000Direct labor payroll .. 600,000Factory overhead .. 900,000Freight-out . 135,000

The cost of raw materials used for the period amounted to:

a. P1,245,000b. P1,290,000c. P1,335,000d. P1,380,000

21.Inventoriable costs are reported as an asset when incurred and expensed on the income statement when the product is sold.

Answer:TrueDifficulty:2Objective:6

22.Cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period.

Answer:FalseDifficulty:1Objective:6Cost of goods manufactured refers to the products brought to completion, whether they were started before or during the current accounting period.

23.For a manufacturing company, direct labor costs may be included in a.direct materials inventory only.b.merchandise inventory only.c.both work-in-process inventory and finished goods inventory.d.direct materials inventory, work-in-process inventory, and finished goods inventory accounts.

Answer:cDifficulty:3Objective:6

24.For a manufacturing company, indirect manufacturing costs may be included in a.direct materials inventory only.b.merchandise inventory only.c.both work-in-process inventory and finished goods inventory.d.direct materials inventory, work-in-process inventory, and finished goods inventory accounts.


25.For a manufacturing-sector company, the cost of factory insurance is classified as aa.direct material cost.b.direct manufacturing labor cost.c.manufacturing overhead cost.d.period cost.


26.For a printing company, the cost of paper is classified as aa.direct material cost.b.direct manufacturing labor cost.c.manufacturing overhead cost.d.period cost.

Answer:aDifficulty:1Objective:6

27.Wages paid to machine operators on an assembly line are classified as aa.direct material cost.b.direct manufacturing labor cost.c.manufacturing overhead cost.d.period cost.

Answer:bDifficulty:1Objective:6

28.Manufacturing overhead costs in an automobile manufacturing plant MOST likely includea.labor costs of the painting department.b.indirect material costs such as lubricants.c.sales commissions.d.steering wheel costs.


29.Manufacturing overhead costs are also referred to as a.indirect manufacturing costs.b.prime costs.c.period costs.d.conversion costs.


30.Manufacturing costs include all EXCEPTa.costs incurred inside the factory.b.both direct and indirect costs.c.both variable and fixed costs.d.both inventoriable and period costs.

Answer:dDifficulty:2Objective:7

31.Inventoriable costsa.include administrative and marketing costs.b.are expensed in the accounting period sold.c.are particularly useful in management accounting.d.are also referred to as nonmanufacturing costs.


32.Inventoriable costs are expensed on the income statement a.when direct materials for the product are purchased.b.after the products are manufactured.c.when the products are sold.d.not at any particular time, it varies.


33.Costs that are initially recorded as assets and expensed when sold are referred to asa.period costs.b.inventoriable costs.c.variable costs.d.fixed costs.


34.For merchandising companies, inventoriable costs includea.the cost of the goods themselves.b.incoming freight costs.c.insurance costs for the goods.d.all of the above.


35.For manufacturing firms, inventoriable costs include a.plant supervisor salaries.b.research and development costs.c.costs of dealing with customers after the sale.d.distribution costs.


36.A plant manufactures several different products. The wages of the plant supervisor can be classified as a(n)a.direct cost.b.inventoriable cost.c.variable cost.d.period cost.


37.The cost of inventory reported on the balance sheet may include all of the following EXCEPTa.customer-service costs.b.wages of the plant supervisor.c.depreciation of the factory equipment.d.the cost of parts used in the manufacturing process.


38.For a computer manufacturer, period costs include the cost ofa.the keyboard.b.labor used for assembly and packaging.c.distribution.d.assembly-line equipment.


39.Period costsa.include only fixed costs.b.seldom influence financial success or failure.c.include the cost of selling, delivering, and after-sales support for customers.d.should be treated as an indirect cost rather than as a direct manufacturing cost.


40.Period costsa.are treated as expenses in the period they are incurred.b.are directly traceable to products.c.include direct labor.d.are also referred to as manufacturing overhead costs.


41.Which of the following is NOT a period cost?a.Marketing costsb.General and administrative costsc.Research and development costsd.Manufacturing costs


42.Costs expensed on the income statement in the accounting period incurred are referred to asa.direct costs.b.indirect costs.c.period costs.d.inventoriable costs.


43.Prime costs includea.direct materials and direct manufacturing labor costs.b.direct manufacturing labor and manufacturing overhead costs.c.direct materials and manufacturing overhead costs.d.only direct materials.


44.Conversion costs includea.direct materials and direct manufacturing labor costs.b.direct manufacturing labor and manufacturing overhead costs.c.direct materials and manufacturing overhead costs.d.only direct materials.


45.Total manufacturing costs equala.direct materials + prime costs.b.direct materials + conversion costs.c.direct manufacturing labor costs + prime costs.d.direct manufacturing labor costs + conversion costs.


46.The cost classification system used by manufacturing firms include all of the following EXCEPTa.direct materials costs and conversion costs.b.direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs.c.indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs.d.prime costs and manufacturing overhead costs.


47.Manufacturing overhead costs may include all EXCEPTa.salaries of the plant janitorial staff.b.labor that can be traced to individual products.c.wages paid for unproductive time due to machine breakdowns.d.overtime premiums paid to plant workers.


48.Which of the following formulas determine cost of goods sold in a merchandising entity?a.Beginning inventory + Purchases + Ending inventory = Cost of goods soldb.Beginning inventory + Purchases - Ending inventory = Costs of goods soldc.Beginning inventory - Purchases + Ending inventory = Cost of goods soldd.Beginning inventory - Ending inventory - Purchases = Cost of goods sold


49.Which of the following formulas determine cost of goods sold in a manufacturing entity? a.Beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-process inventory = Cost of goods soldb.Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process inventory = Cost of goods soldc.Cost of goods manufactured - Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold.d.Cost of goods manufactured + Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold.


50.Underapplied overhead isa.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.

ANSWER: C

51.Product costs may refer toa.inventoriable costs for external reporting.b.design costs plus manufacturing costs for government contracts.c.all costs incurred along the value chain for pricing decisions.d.all of the above refer to product costs, it varies.


THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 52 THROUGH 53.The following information pertains to Alleighs Mannequins:Manufacturing costsP 1,500,000Units manufactured 30,000Units sold29,500 units sold for P85 per unitBeginning inventory0 units

52.What is the average manufacturing cost per unit?a.P50.00b.P50.85c.P17.65d.P85.00

Answer:aDifficulty:1Objective:4$1,500,000 / 30,000 = $50.00

53.What is the amount of ending finished goods inventory?a.P42,500b.P25,424c.P25,000d.P1,475,000

Answer:cDifficulty:2Objective:4(30,000 - 29,500) x $50.00 = $25,000

54. Problem :A firm has 1,000 A items (which it counts every week, i.e., 5 days), 4,000 B items (counted every 40 days), and 8,000 C items (counted every 100 days). How many items should be counted per day?

55. Problem :Assume you have a product with the following parameters:Annual Demand = 360 unitsHolding cost per year = P1.00 per unitOrder cost = P100 per orderWhat is the EOQ for this product?

56. Problem :Given the data from Problem 3, and assuming a 300-day work year, how many orders should be processed per year? What is the expected time between orders?

57. Problem :What is the total cost for the inventory policy used in Problem 3?

58. Problem :If demand for an item is 3 units per day, and delivery lead-time is 15 days, what should we use for a simple re-order point?

59. Problem :Litely Corp sells 1,350 of its special decorator light switch per year and places orders for 300 of these switches at a time. Assuming no safety stocks, Litely estimates a 50% chance of no shortages in each cycle and the probability of shortages of 5, 10, and 15 units as 0.2, 0.15, and 0.15 respectively. The carrying cost per unit per year is calculated as P5 and the stockout cost is estimated at P6 (P3 lost profit per switch and another P3 loss of goodwill or future sales). What level of safety stock should Litely use for this product? (Consider safety stock of 0, 5, 10, and 15 units.)

60. Problem :Presume that Litely carries a modern white kitchen ceiling lamp that is quite popular. The anticipated demand during lead-time can be approximated by a normal curve having a mean of 180 units and a standard deviation of 40 units. What safety stock should Litely carry to achieve a 95% service level?

ANSWERSProblem 1:

Item ClassQuantityPolicyNumber of Items to Count Per Day

A1,000Every 5 days1000/5 = 200/day

B4,000Every 40 days4000/40=100/day

C8,000Every 100 days8000/100=80/day

Total items to count: 380/day

Problem 2:

The EOQ model assumes any real quantity is feasible. The actual quantity ordered may need to be an integer value and may be affected by packaging or other item characteristics. In the following Problems an EOQ of 268 is assumed.

Problem 3:

Problem 4:

Notice that at the EOQ Total Holding Cost and Total Ordering Cost are equal.

Problem 5:

ROP = Demand during lead-time = 3 * 15 = 45 units

Problem 6:

Carrying cost equals zero.Total Stockout Costs = (stockout costs * possible units of shortage * probability of shortage * number of orders per year)

Stockout cost:

Stockout cost:

(There is no shortage if 15 units are maintained)

Therefore: Minimum cost comes from carrying a 10 unit safety stock.

Problem 7:

To find the safety stock for a 95% service level it is necessary to calculate the 95th percentile on the normal curve. Using the standard Normal table from the text, we find the Z value for 0.95 is 1.65 standard units. The safety stock is then given by:

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prelim exam wth solution

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