MA5128 – Integrated Review in Financial Reporting,

Planning, Performance, and Control

Second Term, Academic Year 2021-2022

HANDOUT 3: COST MANAGEMENT

JOB ORDER COSTING

1. All of the following describe the strategic value of cost information except:
A. Without a clear and confident view of costs, organizations will struggle to
efficiently manage costs.
B. In order to establish the most strategically successful market position, sometimes
companies have to emphasize and deemphasize (or even exit) certain products
or customers available in the organizations’ portfolio.
C. Most organizations in the market have the opportunity to set their price.
Therefore, tracking costs is critical in order to set prices.
D. Organizations that have a clear and confident view of costs can use that
information to effectively manage their market positions.

2. Which of the following correctly depicts the flow of inventory costs in a job order cost
system?
A. Cost of Goods Sold, Work-in-Process Inventory, Raw Materials Inventory,
Finished Goods Inventory
B. Work-in-Process Inventory, Raw Materials Inventory, Finished Goods Inventory,
Cost of Goods Sold
C. Finished Goods Inventory, Work-in-Process Inventory, Cost of Goods Sold
D. Raw Materials Inventory, Work-in-Process Inventory, Finished Goods Inventory,
Cost of Goods Sold

3. How is the Work-in-Process Inventory account related to the Finished Goods

Inventory account?
A. Decreases (credits) to Work-in-Process Inventory should equal decreases
(credits) to Finished Goods Inventory.
B. Increases (debits) to Work-in-Process Inventory should equal increases (debits)
to Finished Goods Inventory.
C. Decreases (credits) to Work-in-Process Inventory should equal increases
(debits) to Finished Goods Inventory.
D. Increases (debits) to Work-in-Process Inventory should equal decreases (credits)
to Finished Goods Inventory.

4. Using job order costing, what general ledger accounts are involved when a job is
delivered to the customer?
A. Increase (debit) Cost of Goods Sold and decrease (credit) Finished Goods
Inventory.
B. Increase (debit) Finished Goods Inventory and decrease (credit) Work-in-
Process Inventory.
C. Increase (debit) Finished Goods Inventory and decrease (credit) Cost of Goods
Sold.
D. Increase (debit) Cost of Goods Sold and decrease (credit) Work-in-Process
Inventory.

5. Eveready Advertising creates ad campaigns for small local businesses. Eveready

offers three services—print, radio, and online. Customers choose which combination
 of ad types they would like and then Eveready produces three ads for each of the
selected types. Which cost system should Eveready use and why?
A. A job order cost system because production of an ad campaign is a service rather
than a manufactured good
B. A process cost system because each client can select ad types from only three
possible options
C. A job order cost system because each ad campaign is a specific job with its own
set of costs
D. A process cost system because clients receive a set number of ads for each type
of advertising they select

6. Aqua Manufacturing had one job, Job JK167, in Work-in-Process Inventory at the
beginning of March. The costs incurred to date on JK167 included P615,000 of direct
materials, P390,000 in direct labor, and P975,000 in overhead. During March, Aqua
added P85,000 of direct materials and P195,000 of direct labor. If Aqua applies
overhead at the rate of 250% of direct labor cost, how much overhead was applied to
Job JK167 during March?
A. P700,000
B. P212,500
C. P487,500
D. P280,000

7. Landers Furnishings uses job order costing. The company has a contract to deliver
furniture to a hotel. The hotel has 60 basic hotel rooms that each need two double
beds and 15 suites that each need one king-size bed. Each double bed has direct
material costs of P10,000 and direct labor costs of P6,250. Each king-size bed has
direct material costs of P17,500 and direct labor costs of P8,750. For all beds,
overhead was 50% of direct labor cost. Landers started the project in January and by
the end of the month had completed 34 basic rooms and 8 suites. Neither Work-in-
Process nor Finished Goods had a beginning balance in January. What was Landers's
Finished Goods Inventory account balance on January 31?
A. P1,317,500
B. P1,562,500
C. P903,750
D. P658,750
8. Jogger's Frames makes custom silver picture frames engraved with names and
significant dates, such as weddings or births. Although the frames can be partially
completed in advance, all frames remain in the Work-in-Process Inventory account
until the final engraving is completed. Job 25GH was completed in January. At the
beginning of January, costs accumulated on the frame were direct materials of P2,000,
direct labor of P3,000, and overhead of P800. Completing the frame required 1.5
hours of direct labor at P750 per hour. Overhead is applied at P200 per direct labor
hour. What is the total cost on the job cost sheet for Job 25GH at the end of January?
A. P7,225
B. P6,125
C. P5,800
D. P6,430

9. Dr. Bulan uses job order costing in her dental practice. Some services, like root canals,
involve multiple visits, often over more than a month's time. At the end of May, Dr.
1Bulan had three patients with partially completed procedures. Patient A had
incurred direct material costs of P12,500 and direct labor costs of P15,000. Patient B
had direct material costs of P7,500 and direct labor costs of P7,500. Patient C had
direct material costs of P15,000 and direct labor costs of P15,000. Dr. Bulan uses a
direct labor rate of P5,000 per hour and applies overhead at the rate of P3,750 per
direct labor hour. What was the balance in the Work-in-Process Inventory account as
of May 31?
A. P72,500
B. P110,000
C. P59,375
D. P100,625
10. Contra Bricks manufactures custom brick products and uses job order costing. The
following information relates to the fiscal year ending December 31, 2022.

Beginning balance in Raw Materials Inventory P680,000

Purchases of raw materials 10,550,000
Ending balance in Raw Materials Inventory 755,000
Beginning balance in Work-in-Process 935,000
Ending balance in Work-in-Process 825,000
Direct labor cost 3,930,000
Manufacturing overhead applied 2,395,000
Actual manufacturing overhead 2,240,000
Beginning balance in Finished Goods 1,310,000
Ending balance in Finished Goods 1,225,000
Sales Revenue 21,050,000
Selling expenses 5,770,000
General and administrative expenses 3,795,000

What is Cost of Goods Manufactured?

A. P16,895,000
B. P16,910,000
C. P16,755,000
D. P19,150,000
PROCESS COSTING

1. A characteristic of products that use a process cost accounting system and are mass
produced in a continuous fashion is:
A. They are custom produced at the time an order is received.
B. They are grouped in small batches.
C. Their costs are accumulated on job cost sheets.
D. The accounting system assumes the products require identical amounts of
materials, labor, and overhead.

2. Which of the following products or services would most likely use a process cost
accounting system?
A. A dozen tax returns at an accounting office
B. A day's worth of repairs at an auto repair shop
C. A subdivision of newly constructed custom homes for a construction company
D. A run of 5,000 one-liter bottles of purified water at a beverage company

3. How are the unit costs computed in a FIFO-based process cost system?
A. Total manufacturing costs for the period are divided by the total number of actual
units completed during the period plus the total number of units incomplete as of
the end of the period.
B. Total manufacturing costs for the period are divided by the equivalent number of
units produced in the period.
C. Total manufacturing costs for the period are divided by the total number of units
started into production in the period.
D. Total manufacturing costs for the period are divided by the total number of actual
units completed in the period.

4. Which of the following is true regarding normal and abnormal spoilage?

A. The costs of abnormal spoilage are transferred forward to the finished goods
inventory account or to the next department's work-in-process inventory
account.
B. Spoilage in the production process is completely avoidable for many
manufacturing organizations if managers work hard to eliminate the costs of
spoilage.
C. The costs of normal and abnormal spoilage are transferred into a loss account
that is immediately recognized on the income statement.
D. Normal spoilage is an accepted cost of production while abnormal spoilage
represents an unacceptable loss in the production process.
5. Amy Enterprises makes gadgets using a two-step process that involves machining
first and assembly second. Amy adds all direct materials at the beginning of the
production process. Conversion occurs uniformly throughout the process. During the
period, the Assembly Department completed 25,500 gadgets and transferred them
out. Of the 25,500 gadgets completed, 5,000 were 70% complete at the beginning of
the period. In addition, Amy had 6,500 units in process that were 65% complete at
the end of the period. Using the FIFO method of process costing, what are the
equivalent units of production for conversion costs in Assembly?
A. 26,225 gadgets
B. 24,275 gadgets
C. 32,000 gadgets
D. 24,725 gadgets

6. A department adds raw materials to a process at the beginning of the process and
incurs conversion costs uniformly throughout the process. For the month of January,
there were 45,000 units in the Beginning Work-in-Process Inventory that were 80%
complete; 405,000 units were started into production in January; and 90,000 units
that were 40% complete in the Ending Work-in-Process Inventory at the end of
January. Using the FIFO method of process costing, what are the equivalent units of
production for materials for the month of January?
A. 315,000 equivalent units
B. 450,000 equivalent units
C. 405,000 equivalent units
D. 360,000 equivalent units
7. In the month of June, a department had 110,000 units in Beginning Work-in-Process
that were 70% complete. During June, 495,000 units were transferred into
production from another department. At the end of June there were 55,000 units in
Ending Work-in-Process that were 40% complete. Materials are added at the
beginning of the process, while conversion costs are incurred uniformly throughout
the process. Using the weighted-average method of process costing, the equivalent
units of production for conversion costs in June are:
A. 550,000 equivalent units.
B. 572,000 equivalent units.
C. 605,000 equivalent units.
D. 495,000 equivalent units.
8. Check Check Check (CCC) is a company that provides home inspections for individuals
looking into purchasing a home. CCC has two portions of the inspection process—
outside inspection and inside inspection. The following data show the production and
cost results for outside inspections for the month of July:

Production Data:
Outside inspections in process, July 1 (70% complete) 180
Outside inspections started in production 3,150
Outside inspections in process, July 31 (80% complete) 120

Cost Data:
Costs in outside inspections in process, July 1 P33,480
Costs for July P585,120

Costs of direct materials (paper, ink, etc.) are immaterial for CCC. Hence, all
production costs are conversion costs (labor and overhead).

Using the first in first out (FIFO) method of process costing, compute for July the cost
of outside inspections completed and transferred out to inside inspections, and
compute the value of work-in-process inspections at the end of the month.
A. Completed and transferred out: P567,456; Ending work-in-process inspections:
P17,273
B. Completed and transferred out: P601,327; Ending work-in-process inspections:
P17,273
C. Completed and transferred out: P600,636; Ending work-in-process inspections:
P17,273
D. Completed and transferred out: P601,327; Ending work-in-process inspections:
P22,080
9. Check Check Check (CCC) is a company that provides home inspections for individuals
looking into purchasing a home. CCC has two portions of the inspection process—
outside inspection and inside inspection. The following data show the production and
cost results for outside inspections for the month of July:

Production Data:
Outside inspections in process, July 1 (70% complete) 180
Outside inspections started in production 3,150
Outside inspections in process, July 31 (80% complete) 120

Cost Data:
Costs in outside inspections in process, July 1 P33,480
Costs for July P585,120

Costs of direct materials (paper, ink, etc.) are immaterial for CCC. Hence, all
production costs are conversion costs (labor and overhead).

Using the weighted-average (W/A) method for process costing, compute for July the
cost of outside inspections completed and transferred out to inside inspections, and
compute the value of work-in-process inspections at the end of the month.
A. Completed and transferred out: P600,637; Ending work-in-process inspections:
P17,963
B. Completed and transferred out: P568,128; Ending work-in-process inspections:
P16,992
C. Completed and transferred out: P601,327; Ending work-in-process inspections:
P17,963
D. Completed and transferred out: P600,637; Ending work-in-process inspections:
P22,452
10. Paper Company (PC) produces several different kinds of paper products for
businesses across the country. PC began the March period with 500 reams of paper
in Work-in-Process, started 15,000 new reams, and ended the period with 600 units
still in process. PC deems it acceptable (normal) for as many as 200 reams of paper
to be spoiled in the production process during the month. However, PC had 400
reams of paper spoiled during the March production process, and. 14,500 reams of
good paper were transferred to Finished Goods. How are the costs treated that are
associated with the 400 reams of spoiled paper?
A. The costs associated with the 200 reams of paper that are spoiled and considered
abnormal costs will be transferred immediately to a loss account and reported on
the income statement. The costs associated with the 200 reams of paper that are
spoiled and considered normal will be included with the rest of the costs of goods
manufactured that are transferred to the finished goods inventory account.
B. The costs associated with the 400 reams of paper that were spoiled will be
included with the rest of the costs of goods manufactured that are transferred to
the finished goods inventory account.
C. The costs associated with the 200 reams of paper that are spoiled and considered
normal costs will be transferred immediately to a loss account and reported on
the income statement. The 200 reams of paper that are spoiled and considered
abnormal costs will be included with the rest of the costs of goods manufactured
that are transferred to the finished goods inventory account.
D. The costs associated with the 400 reams of paper that were spoiled will be
transferred immediately to a loss account and reported on the income statement.