SOLUTIONS:

1. . Computed as follows:

Cost of go ods so ld P112,000

Add i ncrease i n f inished g oods i 8,000
nventory
Cost o f g oods m anufactured 120,000
Add increased in work in p rocess 8,000
inventory
Total m anufacturing c ost 128,000
24,000
Less: Factory overhead (32,000 x 75%)
Direct la bor c ost 32,000 56,000
Cost o f ra w m aterial u sed 72,000
Add i ncrease i n r aw m aterial i 1,200
nventory
Cost o f r aw m aterials p urchased P73,200

2. . The computation is:

Manufacturing overhead (50% of direct P30,101.80

labor) Direct l abor(30,101.80x2) 60,203.60
Total equals 50% of total manufacturing 90,305.40
cost
Thus, the cost of raw material used 90,305.40
equals
Total m anufacturing c ost 180,601.80
Add decrease in work in process 590.00
inventory
Cost o f g oods m anufactured P181,200.80

3. Computed as follows:

201 202 203 Tota

Direct m aterials
P7,0 P5,800 l
00 P24,4
P11,600 00
Direct la bor 6,600 6,000 8,400 21,00
0
Applied m anufacturing o verhead 5,500 5,000 7,000 17,50
0
Total c ost P19,100 P16,800 P62,9
00
P27,000
4. . D irect m aterial u sed ( Squeeze) P370,00
0
Direct l abor ( 270,000 / 75%) 360,00
0
Factory overhead applied (1,000,000x27%) 270,00
0
Total m anufacturing c ost a dded 1,000,0
00
Add beg. Work-in process inventory 120,00
(Schedule 1) 0
Manufacturing c ost t o account f or 1,120,0
00
Less ending work-in process inventory 150,00
0
Cost o f g oods m anufactured P970,0
00
 Schedule 1: Let x = ending WIP Inventory
Therefore: P1,000,000 +
. 80x - x = P 970,000
x = P 150,000 (W IP - End)
.80x = P120,000 (WIP - Beg.)

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

Direct m aterial u sed P37,220

Direct la bor 33,725
Manufacturing overhead applied 28,320
Total c harges t o W P99,265
IP Less e nding W IP 43,770

Cost of goods manufactured (finished) P55,49

5

6. D irect m aterials P17,000

Direct la bor 8,000
Factory overhead (150% x P8,000) 12,000
Total m anufacturing c osts P37,000
Add W IP, A ug. 1 3,000

Total cost of goods in processor P40,000

Less cost of goods manufactured 24,000
P16,000
Work-in process inventory, Aug. 31

7. Work-in p rocess - beginning P4,200

Direct ma terials 1,000
Direct la bor (P 5 x 2 0 h ours) 100
Applied manufacturing overhead (P4.50 x 20 hours) 90
Indirect m aterials ( directly i dentified) 10
Total c ost o f J ob O rder N o. 2 10 P5,40
0
8. The problems indicates that manufacturing overhead is applied to jobs on the basis
of direct labor cost. Department M’s predetermined overhead rate is 300%
(600,000/200,000) of direct labor cost. Department A’s predetermined overhead rate
is 50% (400,000/800,000). The total
manufacturing costs for Job Order No. 432 is:

Direct m aterials P25,000

 Direct labor Department M Department A
Manufacturing overhead P8,000
12,000 20,000
Department M (8,000 x 300%) P24,000
Department A 5 0%) 16,000
( 12,000 x 30,000 P75,000

Total m anufacturing c osts

9. 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. T he
T-account analysis below indicates an ending work-in process balance of P9,000.

work-in process
3/1 P12,000 P100,000 f inished g
DM 40,000 oods
DL
OH 30,000
27,000
3/31 b P109,000 P100,000
alance 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 cos t of j ob P9,000
9 0%)
Less d irect l abor (
P2,250 ÷ P2,500
Overhead (g iven)
4,750
P
2,250

cost of di rect m aterials

10. Total d ebit t o w ork i n p rocess a ccount P145,0
Less: C redit t o w ork i n p rocess a ccount 00
125,45
0
Work in p rocess in ventory, A pril 3 0 19,550
Less: labor and overhead charged to
Job N o. 4 56: D . L abor P3,000
Job. No. 456: Overhead (P3,000 2,250
x 3/4)
Job No. 789: D. Labor (P2,400 x 3,200
4/3)
Job N o. 7 89: O verhead 2,400 10,850
Materials c harged t o J ob. N o. 4 56 a nd J ob N o. 7 P8,700
89

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

Cost o f g oods s old (P50,000 x 7 5/25) P150,000

Add: Increase in finished goods inventory
P168,000

18,000 Cost of goods manufactured during September

2013
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 o f g oods m anufactured P168,0

Add: I ncrease i n w ork i n p rocess i 00
nventory 15,000
Manufacturing costs to process during Sept., 183,00
2013 0
Less: Coversion costs:
Direct l abor 84,000
(63,000/.75)
Factory o verhead 63,000 147,00
0
Raw ma terial us ed 36,000
Add: R aw m aterials i nventory, S ept. 3 0, 50,000
2013
Total r aw m aterial a vailable f or u se 86,000
Less: R aw m aterials p urchases 46,000
Raw m aterials i nventory, August 3 1, 2 013 P40,00
0

12. 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 cos t 675,000
Less: D irect l abor c ost ( 225,000/.75) 312,000
Direct material us ed 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
50,000
Increase in Work in process 25%
inventory Divided by
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

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

Work in pr ocess, Se pt. 1 P30,00

0
Add: Manufacturing cost
Direct M aterials P60,0
00
Direct lab or 50,00
0
Factory o verhead 150,00
40,00 0
0
Total c ost o f g oods p laced i n process 180,00
0
Less: C ost o f g oods m anufactured 160,00
( completed) 0
Work in process, Sept. 30 (charged to Job No. 20,000
327)
Less: Direct labor [4,600÷(40,000/50,000)] P5,75
Factory ov erhead 10,350
0
4,600
Direct m aterials c harged t o Job N o. 3 17 P9,650

14.. Di rect m aterials P125,0

00
Direct lab or 122,00
0
Overhead: 7 5% x P 122,000 91,50
0
 Total c harged t o w ork in p rocess 338,50
0
Less: A mount c harged t o w ork i n p 310,50
rocess 0
Total c osts a pplicable t o J ob N o. 1 00 28,00
0
Less: conversion costs of Job No. 100:
Direct la bor P10,0
00
Overhead: 7 5% x P 10,000 7,50 17,500
0

Direct m aterials c harged t o J ob N o. 1 00 P10,50

0
P153,
65
15 . Cost of goods manufactured 0
Add: Increase i n work in process inventory 8,0
00
Total c ost a dded t o p roduction 161,6
50
Less: Applied overhead (60,000 x 100/75) 80,000
Prime c ost ( direct m aterial a nd l abor) 81,650

16. Cost of goods sold at normal

P720,00 0
Add: Underapplied overhead allocated to COS:

Cost of goods sold

COGS + WIP + FG X Underapplied
overhead

Therefore:
720,000
720,000 + 54,000 + X 45,000 = 37,500
90,000
COS at actual costing

17. 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 a pplied ( P40,000 +P15,000) 55,000
Total m anufacturing c ost o f J ob P135,000

18. 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. P4,000 P48,000
Balance FG 24,000
DM
DL 16,000
MO 12,80
0 48,00
0
Ending P8,80
Balance 0
Therefore the cost of direct materials is P5,200 [P8,800- (P2,000 + P1,600)]

a. D irect m aterials P 75 ,000

Direct l abor(P40,000 + P 100,000 x P 20,000)
160,000

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

Total m anufacturing c ost P280,000

19. D irect m aterials P1,700,000

Direct lab or 160,000
Applied o verhead 1 50%) 45,000
( P800,000 x
Total m anufacturing c ost 3,700,000
Add: W ork i n p rocess, b eginning 300,000

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

Less: C ost o f g oods m anufactured 2,400,000
Work in p rocess, e nd P1,600,00
0
20. R aw m aterials p urchased P1,290,000
Less: Increase in raw materials inventory 45,000
Cost o f r aw m aterials 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.

21. . D irect m aterials ( P5,000 + P 3,000) P

Direct Labor 8 ,000
Dept. A (4 00 X P 4) 1,600
Dept B (2 00 X P 5) 1,000 2,600
Production overhead
Dept. A (4 00 X P 4) 1,600
Dept B (2 00XP4) 800 2,400
Total pr oduction co st P13,000
Administrative and other overhead
(P13,000 x 20 % ) 2,600
Total m anufacturing co st P15,600
Therefore selling price is P20,800 (15,600 ÷75% )

22. D irect m aterials ( P90,000 x 6 0%) P54,000

Direct la bor (3 60 x P1 8) 6,480
Variable o verhead (3 60 x 1 0) 3,600

Actual cost of East P64,080

23 . To compute the answer statement of cost of goods manufacturing and sold is

prepared as follows:

Direct m aterial us ed P60,0

00
Direct labor [(8000 hours x P5.60) + (4,600 hours x
P6.00)] Applied manufacturing overhead [(8,000 x P6.00) 72,400
+ (4,600 hours x
P8.00 84,800

Manufacturing co sts 217,200

Beginning w ork in p rocess 15,000

Total 232,200

Ending w ork in pr ocess 17,600

Cost o f g oods m anufactured 214,600

Beginning f inished g oods inventory 22,000

Cost o f g oods a vailable f or s ale 236,600

Ending f inished g oods in ventory 17,000

Cost o f g oods s old a t n ormal c osting 219,600

24. .
Cost o f g oods m anufactured P515,000

Beginning fi nished goods Ja n 1 65,000

Total 580,000

Ending finished goods Jan 31

 50,000

Cost o f g oods s old a ctual ( before a djustment) 530,000

Over-applied o verhead ( P150,000 - P144,000) (6,000)

Cost o f goods so ld a ctual 524,000

25. 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 v alue o f b ad s hoes (
6,000)
P115,000
Net cost of Job 501

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.

28..
P
Original Cost (charged to work in
process) Rework cost: 2,660
Direct materials P10
16 0
Direct la bor 0
Factory overhead (150% x P 24 500
160) 0 P 3,1
Total cos t 60
Divided b y n umber o f u nits 200
Unit c ost o f J ob o rder II I P15.80

29.
Original co st P2,660
Divided b y n umber o f u nits 200
Unit cost P13.3
0

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

30. Original c ost ( 1 ,100 u nits x P 30)

P33,000 Rework co st o f d etective u nits

500

Proceeds f rom s ale o f s poiled u nits

P32,000
(1,500) Total cost
Divide by goods units (1,100 units - 100 spoiled units) ÷1,000
P32
Unit cost

31. Rework cost

Direct ma terials P5,000

Indirect ma terials 300

Direct labo r 14,000

Applied manufacturing o verhead ( 14,000 x 1 50%)

P40,300
21,000 Total

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

32, 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

a. Allocated to Department B:

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

From department 2 cost ( P300 x 1 0/80) 37.50
Total P 87.5 0
Direct cos t P5,000
Allocated cost
From department 1 (P150 x 40/60) P100
From department 2 (P300 x 70/80) 262.50 362.50
P5,362.5
Total co st o f D ept A 0

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

Departments
Operating Departments
1 2 A B
Direct cos ts P150 P300
Allocation of:

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

Depa Total
rtme
nt 1
co st; The cost allocated to Department B is therefore
P100.
40 :2
140 70
0
P35 P100
0
a.
Direct cos ts P5,000
Allocated c osts ( refer t o n umber 3 7) 350
P5,35
Total co st of D ept A 0

b. 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 co sts P150 P300
Allocation o f D ept. 1 , 4 0:40:20 (150) 60 P60 P30
Allocation o f D ept. 2 , 2 0:70:10 72 (360) 252 36
Allocation o f D ept. 1 , 4 0:40:20 (72) 28.80 28.80 14.40
Allocation o f D ept. 2 , 2 0:70:10 5.76 (28.80) 20.16 2.88
Allocation o f D ept. 1 , 4 0:40:20 (5.76) 2.30 2.30 1.16
Allocation o f D ept. 2 , 2 0:70:10 .46 (2.30) 1.61 .23
Allocation o f D ept. 1 , 4 0:40:20 (.46) .18 .18 .10
Allocation o f D ept. 2 , 20:70:10 .04 (.18) .13 .01
Allocation o f D ept. 1 , 4 0:40:20 (.04) .02 .02 -
Allocation o f D ept. 2 , 2 0:70:10 - (.02) .02 -
Total al located co st 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 1’s 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 co sts P150 P300
Allocation o f D ept. 1 , 4 (228.26) 91.30 P91.30 P45.65
0:40:20
Allocation o f D ept. 2 , 2 78.26 (391.30) 273.91 39.13
0:70:10
Total allocations P365.21 P84.78

38. . Total cost of

Department A:
 Direct cos ts P5,000
Allocated co sts 365.22
Total P5.365.2
2

39. 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

40. The correct answer is (a). Prime cost is equal to direct materials plus direct
labor. The f irst step is to compute the cost of raw materials used during the
month as follows:
Beginning m aterials i nventory P67,0
00
Purchases 163,0
00
Transportation-in 4,000
Purchases r eturns a nd a llowances ( 2,00
0)
Materials a vailable fo r u se 232,0
00
Ending m aterials inventory (6
2,000)
Materials us ed P170,0
00

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

41. The correct answer is (b). The computation

is: Cost of goods manufactured:

Prime co st (No.44)
Applied o verhead ( 70%of P 200,000)
P370,000
140,000

Manufacturing co st
510,000

Work-in-Process, N ov.1
42. The correct answer is (c). The computation is:
Actual fa ctory o verhead P132,000
Applied fa ctory o verhead 140,000
Overapplied o verhead ( credit) P 8
,000
43. 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.

44. 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 Department’s overhead to the
Tool Department is P875 {P35,000 x [1 employee / (1+2+25+12)]}.

45. The unit cost is P18 as computed below:

Total m anufacturing c osts P540,000
Cost of spoiled units (30,000 x 4%) x P540,000/30,000 ( 21,600)
Cost o f t he g ood u nits ( 30,000 x 9 6%) 2 8,800 P518,400
Unit c ost ( P518,400 / 2 8,800 u nits) P 18

46. Letter (a) is correct. The unit selling price is computed as follows:
Total m anufacturing c osts P540,000
Scrap value of spoiled units (30,000 x 4%) x P15 ( 18,000)
Cost of go od un its P522,000
Selling p rice ( 522,000 x 1 4%) P730,800
Unit s elling p rice ( P730,800/28,800 u nits) P 2 5,375

47. Choice (c) is correct. The

computation is: Total manufacturing
costs:
Materials (2 00 x 40 0) P40,000
Labor (20 0 x 1 7 5) 35,000
Applied o verhead ( 160% X 3 5,000)
56,000
Total

P131,000
Unit co st (P 131,000/200) P 6 55

48. Choice (c) is correct. The unit cost is computed as

follows: Total manufacturing costs:
Materials P40,000
Labor 35,000