COST

 ACCOUNTING  
JOB  ORDER  COSTING  SYSTEM  
Job  order  costing  is  a  system  for  allocating  costs  to  groups  of  unique  products  such  as  customer-­‐‑specified  products.  
 
Spoilage  in  job  order  
Normal  spoilage  –  included  in  the  predetermined  overhead  rate  if  spoilage  is  due  to  general  factory  conditions.    If  due  to  a  
specific  job,  net  spoilage  costs  are  charged  to  the  specific  job.  
Abnormal  spoilage  –  not  included  in  predetermined  overhead  rate,  hence  charged  off  to  loss  normally  as  part  of  factory  
overhead  control.  
 
1.   During   the   current   accounting   period,   a   manufacturing   company   purchased   P70,000   raw   materials,   of   which   P50,000  
of  direct  materials  and  P5,000  of  indirect  materials  were  used  in  production.    The  company  also  incurred  P45,000  of  
total   labor   costs   and   P20,000   of   other   factory   overhead   costs.     An   analysis   of   the   work-­‐‑in-­‐‑process   control   account  
revealed  P40,000  of  direct  labor  costs.    Based  upon  the  above  information,  what  is  the  total  amount  accumulated  in  the  
factory  overhead  control  account?    
 
2.   Pamela  Company  operates  its  factory  on  a  two-­‐‑shift  basis  and  pays  a  late  shift  differential  of  15%.    Pamela  also  pays  a  
premium  of  50%  for  overtime  work.    Because  Pamela  manufactures  only  for  stock,  the  cost  system  provides  for  uniform  
direct-­‐‑labor  hourly  charges  for  production  done  without  regard  to  shift  worked  or  work  done  on  an  overtime  basis.    
Overtime  and  late-­‐‑shift  differentials  are  included  in  Pamela’s  factory  overhead  application  rate.    The  May  payroll  for  
production  workers  are  as  follows:  
 
Wages  at  base  direct  labor  costs   P  325,000  
Shift  differentials   25,000  
Overtime  premiums   10,000  
 
For  the  month  of  May,  what  amount  of  direct  labor  should  Pamela  charge  to  work-­‐‑in-­‐‑process?    
 
3.   Under   Kiko   Company’s   job   order   costing   system,   manufacturing   overhead   is   applied   to   work-­‐‑in-­‐‑process   using   a  
predetermined  annual  overhead  rate.    During  the  month  of  January  2013,  Kiko’s  transactions  included  the  following:  
 
Direct  materials  issued  to  production   P      90,000  
Indirect  materials  issued  to  production   8,000  
Manufacturing  overhead  incurred   125,000  
Manufacturing  overhead  applied   113,000  
Direct  labor  costs   107,000  
 
Kiko  Company  had  neither  beginning  nor  ending  work-­‐‑in-­‐‑process  inventory.    What  was  the  cost  of  jobs  completed  in  
January  2013?    
 
4.   Silver   Corporation   transferred   P72,000   of   raw   materials   to   its   production   department   in   February   and   incurred  
P37,000  of  conversion  costs  (P22,000  of  direct  labor  and  P15,000  factory  overhead).    At  the  beginning  of  the  period,  
P14,000   of   inventory   (direct   materials   and   conversion   costs)   was   in   process.     At   the   end   of   the   period,   P18,000   of  
inventory  was  in  process.    What  was  the  cost  of  goods  manufactured?    
 
5.   Lucy  Sportswear  manufactures  a  specialty  line  of  t-­‐‑shirts  using  a  job  order  cost  system.    During  March,  the  following  
costs  were  incurred  in  completing  Job  IKO2:  direct  materials,  P13,700;  direct  labor,  P4,800;  administrative,  P1,400;  and  
selling,  P5,600.    Factory  overhead  was  applied  at  the  rate  of  P25  per  machine  hour,  and  Job  IKO2  required  800  machine  
hours.    If  Job  IKO2  resulted  in  7,000  good  shirts,  the  cost  of  goods  sold  per  unit  would  be?    
 
Use  the  following  information  to  answer  questions  6  –  7:  
Marcos   Company   uses   job-­‐‑order   costing.     Factory   overhead   is   applied   to   production   at   a   predetermined   rate   of   150%  
of  direct  labor  cost.    Any  over  or  under-­‐‑applied  factory  overhead  is  closed  to  the  cost  of  goods  sold  account  at  the  end  
of  each  month.    Job  101  was  the  only  job  in  process  at  January  31,  with  accumulated  costs  as  follows:  
 
Direct  materials   P  4,000  
Direct  labor   2,000  
Applied  factory  overhead   3,000  
 
COST  ACCOUNTING  
Jobs   102,   103,   and   104   were   started   during   February.     Direct   materials   requisitions   for   February   totaled   P26,000.      
Direct   labor   cost   of   P20,000   was   incurred   for   February.     Actual   factory   overhead   was   P32,000   for   February.     The   only  
job  still  in  process  on  February  28  was  Job  104,  with  costs  of  P2,800  for  direct  materials  and  P1,800  for  direct  labor.  
 
6.   Determine  the  cost  of  goods  manufactured  for  February.    
 
7.   Determine   the   over   or   under-­‐‑applied   factory   overhead   that   should   be   closed   to   the   cost   of   goods   sold   account   at  
February  28.    
 
Use  the  following  information  to  answer  questions  8  –  13:  
The  USA  Company  uses  a  job  order  cost  system.    The  inventories  on  October  1:  Finished  goods,  P5,000  (Job  Order  No.  
1000),   Work-­‐‑in-­‐‑process,   P445   (Job   Order   No.   1001)   and   direct   materials   of   P2,000.     Purchases   of   direct   materials,  
30,000  pieces  @  P1.40  per  piece.    Following  are  the  additional  costs  incurred  during  the  month:  
 
    Direct  Labor  Costs   Direct  Labor  Hours  
Job  Order  Nos.   Direct  Materials  
1001   P  4,100   P  1,375   1,300  
1002   9,150   7,250   3,700  
1003   11,275   14,325   8,200  
1004   3,225   2,800   1,500  
1005   6,500   6,100   3,200  
1006   2,750   1,650   980  
 
Manufacturing   overhead   costs   are   charged   to   jobs   on   the   basis   of   P1.50   per   direct   labor   hour   used.     The   actual  
manufacturing  overhead  cost  for  the  month  totaled  P30,350.    During  October,  Job  Order  Nos.  1001,  1002,  1004,  and  
1005  were  completed.    Jobs  1001  and  1002  were  shipped  out  and  the  customers  were  billed  for  P9,000  for  Job  1001  
and  P20,000  for  1002.  Compute  for  the  following:  
 
8.   Cost  of  goods  manufactured    
9.   Work-­‐‑in-­‐‑process  on  October  31,  2009    
10.   Cost  of  goods  available  for  sale    
11.   Finished  goods  on  October  31,  2009    
12.   Cost  of  goods  sold    
13.   Gross  margin  on  Jobs  1001  and  1002    
 
Use  the  following  information  to  answer  questions  14  –  15:  
Vat  Corporation  manufactures  rattan  furniture  sets  for  export  and  uses  the  job  order  cost  system  in  accounting  for  its  
costs.    You  obtained  from  the  corporation’s  books  and  records  the  following  information  for  the  year  ended  December  
31,  2011:  
 
-­‐   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  2011  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   materials,   actual   direct   labor   and   applied  
manufacturing  overhead,  was  P850,000.  
 
14.   Determine  the  cost  of  direct  materials  used.    
15.   Determine  the  work-­‐‑in-­‐‑process  inventory  on  December  31,  2011.    
 
16.   Under   Gener   Company’s   job   order   cost   system,   estimated   costs   of   defective   work   (considered   normal   in   the  
manufacturing  process)  are  included  in  the  predetermined  factory  overhead  rate.    During  March,  Job  No.  210  for  2,000  
hand  saws  was  completed  at  the  following  costs  per  unit:  
 
Direct  materials   P      5  
Direct  Labor   4  
Factory  Overhead  (150%  of  direct  labor  costs)   6  
COST  ACCOUNTING  
Total   P  15  
 
Final   inspection   disclosed   100   defective   saws,   which   were   reworked   at   a   cost   of   P2   per   unit   of   direct   labor,   plus  
overhead  at  a  predetermined  rate.    The  defective  units  fall  within  the  normal  range.    What  is  the  total  rework  cost  and  
to  what  account  should  it  be  charged?    
 
Use  the  following  information  to  answer  questions  17  –  18:  
Flowering  Plant  Company  started  150  units  in  process  on  job  order  #13.    The  prime  costs  placed  in  process  consisted  
of   P30,000   and   P18,000   for   materials   and   direct   labor,   respectively,   and   a   predetermined   rate   was   used     to   charge  
factory  overhead  to  production  at  133  1/3%  of  the  direct  labor  cost.    Upon  completion  of  the  job  order,  units  equal  to  
20%  of  the  good  output  were  rejected  for  failing  to  meet  strict  quality  control  requirements.    The  company  sells  rejected  
units  as  scrap  at  only  1/3  of  production  cost,  and  bills  customers  at  150%  of  production  cost.      
 
17.   If  the  rejected  units  were  ascribed  to  company  failure,  the  billing  price  of  job  order  #13  would  be?    
18.   If  the  rejected  units  were  ascribed  to  customer  action,  the  billing  price  of  job  order  #13  would  be?    
 
Use  the  following  information  to  answer  questions  19  –  20:  
Manila  Company  manufactures  lifting  equipment.    One  order  from  Baguio  Company  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  defect  unit  costs  are  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.    
 
19.   Assuming  cost  of  defective  units  is  charged  to  all  the  jobs,  what  is  the  unit  cost  of  finished  goods?  
 
20.   Assuming  cost  of  defective  units  is  charged  to  the  job  order,  what  is  the  unit  cost  of  each  unit  manufactured?  
 
SERVICE  DEPARTMENT  ALLOCATION  
Service  department  cost  may  be  allocated  by:  
a.   Direct  Method  –  allocation  of  service  department  cost  only  to  the  producing  departments.    Cost  is  allocated  based  
on  relative  level  of  apportionment  base.      
 
b.   Step   Method   –   allocation   of   service   department   cost   both   to   to   the   producing   and   other   service   departments.      
The  cost  of  service  department  that  renders  service  to  the  most  number  of  other  departments  is  allocated  first.    If  
both  service  departments  serve  the  same  number  of  department,  the  service  department  with  the  highest  cost  is  
allocated  first.    Cost  of  service  departments  are  never  allocated  back  to  departments  whose  costs  have  already  been  
allocate.  
 
c.   Algebraic   or   simultaneous   or   reciprocal   method   –   the   total   cost   of   service   department   is   computed   first   which  
should   include   the   share   in   the   cost   of   other   service   department   using   algebra.     The   total   cost   is   then   allocated   to  
all  departments  served.  
 
Use  the  following  information  to  answer  questions  21  –  26:  
Pamela  Company  has  two  service  departments  (1  and  2)  and  two  operating  (producing)  departments  (A  and  B).    Data  
provided  are  as  follows:  
 
  Service  Departments   Operating  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%  
 
21.   Assuming  the  direct  method  is  used  to  allocate  service  department  costs,  what  is  the  service  department  cost  allocated  
to  Department  B?    
COST  ACCOUNTING  
 
22.   Assuming  the  direct  method  is  used  to  allocate  service  department  costs,  what  is  the  total  cost  of  Department  A?  
 
23.   Assuming  the  step-­‐‑down  method  is  used  to  allocate  service  department  costs,  what  is  the  service  department  costs  
allocated  to  Department  B?    
 
24.   Assuming  the  step-­‐‑down  method  is  used  to  allocate  service  department  costs,  what  is  the  total  cost  of  Department  A?    
 
25.   Assuming  the  reciprocal  method  is  used  to  allocate  service  department  costs,  what  is  the  service  department  costs  
allocated  to  Department  B?    
 
26.   Assuming  the  reciprocal  method  is  used  to  allocate  service  department  costs,  what  is  the  total  cost  of  Department  A?    
 
 
PROCESS  COSTING  
EQUIVALENT  UNITS  OF  PRODUCTION  
Compute  the  EUP  for  each  of  the  following  independent  cases  below:  
1.   The  production  data  of  Harney  &  Sons  Company  for  the  month  of  December  31,  2017,  follow:  
 Department  A      Department  B    
In  process,  December  1    10,000      5,000    
Stage  of  completion    2/5   10%  
Started  in  process    20,000      25,000    
In  process,  December  31    ?      10,000    
Stage  of  completion   60%    3/5  
 
A.   Department  A  applies  materials  100%  at  the  start  of  the  process,  while  Department  B  applies  materials  at  100%  
at  the  end  of  the  process.    Both  departments  apply  conversion  costs  evenly.  
B.   Department  A  applies  materials  1/5  when  the  process  is  started;  30%  when  the  process  reaches  ½  completion,  
and  the  balance  at  the  end  of  the  process.    In  Department  B,  materials  are  applied  60%  at  the  start  of  the  process  
and  40%  at  the  end.    (compute  for  material  equivalent  production  only  in  both  departments)  
 
2.   Materials  are  issued  at  the  following  stages:  
At  the  start  of  the  process   25%  
When  work  is  50%  completed   50%  
When  work  is  75%  completed    balance    
Conversion  costs  are  applied  uniformly.  
In  process,  June  1  (3/4  complete)    10,000  units    
Transferred  out    65000  units    
In  process,  June  30  (2/5  complete)    25000  units    
 
3.   In  process,  beginning  (40%  incomplete)   28,000  units  
Started  in  process  during  the  period   86,000  units  
Transferred  out  to  next  department   86,000  units  
In  process,  end  (3/5  complete)    ?  
Materials  are  issued  100%  at  the  start  of  the  process,  and  conversion  costs  are  applied  uniformly.  
 
4.   In  Department  A,  all  materials  are  issued  at  the  start  of  the  process,  while  in  Department  B,  1/5  of  the  materials  are  
issued  at  the  start,  ½  when  the  work  is  ½  completed,  and  the  balance  at  the  end  of  the  process;  and  in  Department  C,  
all  materials  are  issued  at  the  end  of  the  process.    Conversion  costs  are  applied  uniformly  in  all  departments.  
 Dept.  A      Dept.  B      Dept.  C    
In  process,  June  1    4,000      ?      12,000    
Stage  of  completion    2/5    1/4    2/5  
Current  production    12,000      ?      ?    
Finished  and  transferred    ?      20,000      30,000    
Finished  and  on  hand    -­‐‑          5,000      -­‐‑        
In  process,  June  30    6,000      15,000      ?    
Stage  of  completion   20%   50%   35%  
 
COST  ACCOUNTING  
5.   In  process,  beginning  (1/4  complete)   10,000  units  
Started  in  process    7,500  units  
In  process,  end  (2/5  complete)   10,500  units  
Materials  are  issued  as  follows:  40%  at  the  start  and  the  balance  at  the  end  of  the  process.    Conversion  costs  are  
applied  evenly.  
 
 
With  Spoiled  Units  
6.   A  product  called  Chai  is  manufactured  in  one  department  of  Rose  Hips  Corporation.    Materials  are  added  at  the  
beginning  of  this  process.    Shrinkage  of  10%  to  14%,  all  occurring  at  the  beginning  of  the  process,  is  considered  
normal.    Labor  and  factory  overhead  are  added  continuously  throughout  the  process.  
 
The  following  information  relates  to  November  production:  
Work  in  process,  November  1  (4,000  pounds,  75%  complete):    
Materials    22,800    
Labor    24,650    
Factory  overhead    21,860    
November  costs:    
Materials  (FIFO  costing)    
Inventory,  November  1,  2,000  pounds    10,000    
Purchase,  November  3,  10,000  pounds    51,000    
Purchase,  November  18,  10,000  pounds    51,500    
Released  to  production  during  November,  16,000  pounds    
Labor    103,350    
Factory  overhead    93,340    
Transferred  out,  15,000  pounds    
Work  in  process,  November  30,  3,000  pounds,  33  1/3%  complete  (average  costing)  
 
Prepare  a  cost  of  production  report  for  November.  
 
 
 
JOINT  COST  ALLOCATION  
1.   Cabanatuan   Company   produces   three   joint   products:   K1,   K2   and   K3.     Total   joint   production   cost   for   February   was  
P21,600.    The  units  produced  and  unit  sales  prices,  respectively,  at  the  split-­‐‑off  point  are:  K1  –  6,000  units  at  P2.20;  K2  
–  8,000  units  at  P1.25;  K3  –  10,000  units  at  P1.28.    In  determining  the  costs  by  the  weighted  average  method,  each  unit  
is  weighted  as  follows:  K1  –  6;  K2  –  4;  and  K3  –  4.  
 
a.   How  much  joint  production  cost  will  be  allocated  to  K3  using  the  market  value  method?  P7,680  
 
b.   How  much  joint  production  cost  will  be  allocated  to  K2  using  the  weighted  average  method?  P6,400  
 
2.   Vivien  Company  manufactures  products  N,  P  and  R  from  a  joint  process.    The  following  information  is  available:  
 
  N   P   R   Total  
Units  produced   12,000   ?   ?   24,000  
Sales  value  at  split-­‐‑off  point   ?   ?   P    50,000   P  200,000  
Joint  costs   P    48,000   ?   ?   P  120,000  
Sales  value  if  processed  further   P110,000   P    90,000   P    60,000   P  260,000  
Additional  costs  if  processed  further   P    18,000   P    14,000   P    10,000   P      42,000  
 
a.   Assuming  that  joint  product  costs  are  allocated  using  the  relative  sales  value  at  split-­‐‑off  approach,  what  was  the  
sales  value  at  split-­‐‑off  for  product  N?    
 
b.   Assuming  that  joint  product  costs  are  allocated  using  the  relative  sales  value  at  split-­‐‑off  approach,  what  was  the  
sales  value  at  split-­‐‑off  for  product  P?    
 
COST  ACCOUNTING  
3.   Ericsson  Company  manufactured  joint  products  X  and  Y  as  well  as  by-­‐‑product  Z.    Cumulative  joint  cost  data  for  the  
period  show  P204,000,  representing  20,000  completed  units  processed  through  the  Refining  Department  at  an  average  
cost  of  P10.20.    Costs  are  assigned  to  X  and  Y  by  the  market  value  method,  which  considers  further  processing  costs  in  
subsequent   operations.     To   determine   the   cost   allocation   to   Z,   the   market   value   (reversal   cost)   method   is   used.    
Additional  data:  
 
  Z   X   Y  
Quantity  processed   2,000   8,000   10,000  
Sales  price  per  unit   P    6   P  20   P  25  
Further  processing  cost  per  unit   2   5   7  
Marketing  and  administrative  expense  per  unit   1   -­‐‑   -­‐‑  
Operating  profit  per  unit   1   -­‐‑   -­‐‑  
 
Compute  for  the  joint  cost  allocated  to  Z.    
 
BY-­‐‑PRODUCT  COSTING  
4.   The  J  &  J  Chemical  Company  produces  a  product  known  as  “VITAMIX”  from  which  a  by-­‐‑product  results.    This  by-­‐‑product  
can  be  sold  at  P4.14  per  unit.    The  manufacturing  costs  of  the  main  product  and  by-­‐‑product  up  to  the  point  of  separation  
for  the  three  months  ended  March  31,  2008  follows:  
 
Materials     P  50,000  
Labor   40,000  
Overhead   30,000  
 
The  units  produced  were  15,000  units  for  the  main  product  and  900  units  for  the  by-­‐‑product.    During  the  period  12,000  
units  of  the  “VITAMIX”  were  sold  at  P16  per  unit,  while  the  company  was  able  to  sell  600  units  of  the  by-­‐‑product.    Selling  
and  administrative  expenses  related  to  the  main  product  amounted  to  P18,000.    Disposal  cost  per  unit  of  the  by-­‐‑product  
is  P1.75.  
 
a.   If  the  by-­‐‑product  is  recorded  at  net  realizable  value,  what  is  the  unit  cost  of  “VITAMIX”  if  the  net  realizable  value  of  
the  by-­‐‑product  is  deducted  from  the  manufacturing  costs  of  “VITAMIX”?    
 
b.   If  the  by-­‐‑product  is  recognized  when  sold,  what  is  the  cost  of  the  inventory  of  “VITAMIX”?    
 
c.   If  the  net  realizable  value  of  the  by-­‐‑product  is  deducted  from  the  cost  of  goods  sold  of  “VITAMIX”,  what  is  the  gross  
profit?    
 
d.   If  the  net  realizable  value  of  the  by-­‐‑product  is  treated  as  other  income,  what  is  the  net  income?