Topics:

1. Cost Accounting System

2. Job-Order System
3. Process Costing
4. Back flush Costing System
5. Service Cost Allocation
6. Joint and By-products

MULTIPLE CHOICE QUESTION: Choose the best answer for each number.

1.Which of the following statements is/are correct?

I.Financial accounting and cost accounting reports must be prepared in accordance with generally
accepted accounting principles (GAAP).
II.Prime cost is the sum of direct labor and manufacturing overhead.
a. Only statement I.
b. Only statement II.
c. Both of the statements
d. Both statements are incorect

2. Manufacturing overhead includes:

a. all direct material, direct labor and administrative costs.
b. all manufacturing costs except direct labor.
c. all manufacturing costs except direct labor and direct materials.
d. all selling and administrative costs.

3. Inventoriable (i.e., product) costs that have become expenses can be found in:
a. period costs.
b. selling expenses.
c. cost of goods sold.
d. administrative expenses.

4. Factory overhead includes:

a. Indirect labor but not indirect materials.
b. Indirect materials but not indirect labor.
c. All manufacturing costs, except indirect materials and indirect labor.
d. All manufacturing costs, except direct materials and direct labor.

5. The term "prime cost" refers to:

a. The sum of direct labor costs and all factory overhead costs.
b. The sum of raw material costs and direct labor costs.
c. All costs associated with manufacturing other than direct labor costs and raw
material costs.
d. Manufacturing costs incurred to produce units of output.

6. In job order costing, the basic document for accumulating the cost of each order is the:
a. Job cost sheet.
b. Requisition sheet.
c. Purchase order.
d. Invoice.
 7. When should process costing techniques be used in assigning costs to products?
a. In situations where standard costing techniques should not be used
b. If the product is composed of mass-produced homogeneous units
c. When production is only partially completed during the accounting period
d. If the product is manufactured on the basis of each order received

8. Under a job order system of cost accounting, Cost of Goods Sold is debited and Finished Goods is
credited for a:
a. Transfer of materials to the factory.
b. Shipment of completed goods to the customer.
c. Transfer of completed production to the finished goods storeroom.
d. Purchase of goods on account.

9. Payroll is debited and Wages Payable is credited to:

a. Pay the payroll taxes.
b. Record the payroll.
c. Pay the payroll.
d. Distribute the payroll.

10. Which of the following statements about semivariable costs is not true?
a. They first have to be broken down into their fixed and variable components before
they can be used to predict costs at different levels of volume.
b. They are sometimes called mixed costs.
c. They vary in direct proportion to volume changes.

d. They may remain constant over a range of production, then abruptly change.
11. Lily Corporation uses process costing to calculate the cost of manufacturing pool systems. Beginning
work in process included 7,000 units 50 percent complete. During the month 15,000 units were
completed, 1,400 units remain in work in process at 80 percent complete. Using the average cost
method, the equivalent units are:
a. 14,000
b. 18,720
c. 16,120
d. 19,900

Units output for the month:

Finished during month 15,000
Equivalent units, work in process ending
(1,400 x 80% complete) 1,120
16,120

12. Norma Company had 10,000 units in work in process at January 1 that were 50 percent complete.
During January, 25,000 units were completed. At January 31, 6,000 units remained in work in process
that were 75 percent complete. Using the average cost method, the equivalent units for January were:
a. 31,000.
b. 29,500.
c. 35,000.
d. 36,000.

Unit output for month:

Finished during month 25,000
Equivalent units of work in process, end of month (6,000 units, 75%
completed) 4,500
29,500
 13. Michael Company had 2,000 units in work in process at January 1 that were 80 percent complete.
During January, 15,000 units were completed. At January 31, 4,000 units remained in work in process
that were 40 percent complete. Using the average cost method, how many units were started during
January?
a. 21,000
b. 18,200
c. 17,000
d. 19,000

Beginning work-in-process 2,000

Units started during month ???
Total units worked on during month 19,000
Units completed during month 15,000
Ending work-in-process 4,000

Ending work-in-process and units completed during the month total 19,000 units. 19,000 units less 2,000 units
equal 17,000 units.
14. Information for the month of January concerning Department A, the first stage of Cando Corporation's
production cycle, follows:

Materials Conversion
Beginning work in process P17,200 P16,400
Current costs 50,000 34,000
Total costs P67,200 P50,400
Equivalent units using average cost method 112,000 112,000
Average unit costs P 0.60 P 0.45
Goods completed 100,000 units
Ending work in process 24,000 units

The ending work in process is 50 percent complete. How would the total costs accounted for be distributed
using the average cost method?

Goods Ending Work

Completed in Process

a. P105,000 P12,600
b. P67,200 P14,400
c. P67,200 P50,400
d. P105,000 P14,400

Cost of the completed goods:

Materials (100,000 x P.60) P 60,000
Conversion costs (100,000 x P.45) 45,000
Total cost of completed goods P105,000
Cost of ending work in process:
Materials (24,000 x 50% x P.60) P 7,200
Conversion costs (24,000 units x 50% x P.45) 5,400
Total cost of ending work in process P 12,600

15. Howell Company uses the average cost method of process costing. Howell had 1,000 units in
beginning work-in-process which were 75% complete. Costs associated with this inventory were
P3,200. When calculating the cost per equivalent unit for the month of June, Howell’s controller should:
a. Not consider the P3,200 as those costs were incurred in a prior period.
b. Calculate the cost to complete the 1,000 items in beginning work-in-process separately.
c. Include the P3,200 with the current month’s cost to arrive at total cost for production to date.
 d. Include the equivalent units to complete the beginning work-in-process inventory to arrive at the
equivalent units for the period.

16. The Columbus Company has three departments A, B and C. Material requisitions amounted to
P10,000, P8,000 and P5,000, respectively, for departments A, B and C. In addition, P2,000 of indirect
materials were used during the period. What is the entry to record the materials used during the
period?
a. Work-in-process 23,000
Materials - Department A 10,000
Materials - Department B 8,000
Materials - Department C 5,000

b. Work-in-process - Department A 10,000

Work-in-process - Department B 8,000
Work-in-process - Department C 5,000
Materials 23,000

c. Work-in-process - Department A 10,000

Work-in-process - Department B 8,000
Work-in-process - Department C 5,000
Factory overhead 2,000
Materials 25,000

d. Work-in-process 23,000
Factory overhead 2,000
Materials 25,000

The entry to record the use of the materials in departments A, B and C and the indirect materials is:

Work-in-process - Department A 10,000

Work-in-process - Department B 8,000
Work-in-process - Department C 5,000
Factory overhead 2,000*
Materials 25,000

*Indirect materials

17. Under which of the following conditions will the first-in, first-out method of process costing produce the
same cost of goods manufactured amount as the average cost method?
a. When goods produced are homogeneous in nature
b. When there is no beginning inventory
c. When there is no ending inventory
d. When beginning and ending inventories are each 50 percent complete

18. In order to compute equivalent units of production using the FIFO method of process costing, work for
the period must be broken down to units:
a. Completed from beginning inventory, started and completed during the month,
and units in ending inventory.
b. Completed during the period and units in ending inventory.
c. Started during the period and units transferred out during the period.
d. Processed during the period and units completed during the period.

19. The difference between EUP calculated using FIFO and EUP calculated using weighted average is the
equivalent units
a. started and completed during the period.
b. residing in beginning Work in Process Inventory.
 c. residing in ending Work in Process Inventory.
d. uncompleted in Work in Process Inventory.

20. Material is added at the beginning of a process in a process costing system. The beginning Work in
Process Inventory for the process was 30 percent complete as to conversion costs. Using the FIFO
method of costing, the number of equivalent units of material for the process during this period is equal
to the

a. beginning inventory this period for the process.

b. units started this period in the process.
c. units started this period in the process plus the beginning Work in Process
Inventory.
d. units started and completed this period plus the units in ending Work in Process
Inventory.

21. In a cost of production report using process costing, transferred-in costs are similar to the
a. cost of material added at the beginning of production.
b. conversion cost added during the period.
c. cost transferred out to the next department.
d. cost included in beginning inventory.

22. In a process costing system, the journal entry to record the transfer of goods from Department #2 to
Finished Goods Inventory is a
a. debit Work in Process Inventory #2, credit Finished Goods Inventory.
b. debit Finished Goods Inventory, credit Work in Process Inventory #1.
c. debit Finished Goods Inventory, credit Work in Process Inventory #2.
d. debit Cost of Goods Sold, credit Work in Process Inventory #2.

23. Taylor Company uses a weighted average process costing system and started 30,000 units this month.
Taylor had 12,000 units that were 20 percent complete as to conversion costs in beginning Work in
Process Inventory and 3,000 units that were 40 percent complete as to conversion costs in ending
Work in Process Inventory. What are equivalent units for conversion costs?
a. 37,800
b. 40,200
c. 40,800
d. 42,000

Beginning Work in Process 12,000 20% 2,400

+ Completion of Units in Process 12,000 80% 9,600
+ Units Started and Completed 27,000 100% 27,000
+ Ending Work in Process 3,000 40% 1,200
Equivalent Units of Production
40,200

24. Kerry Company makes small metal containers. The company began December with 250 containers in
process that were 30 percent complete as to material and 40 percent complete as to conversion costs.
During the month, 5,000 containers were started. At month end, 1,700 containers were still in process
(45 percent complete as to material and 80 percent complete as to conversion costs). Using the
weighted average method, what are the equivalent units for conversion costs?
a. 3,450
b. 4,560
c. 4,610
d. 4,910
Beginning Work in Process 250 40% 100
+ Completion of Units in Process 250 60% 150
+ Units Started and Completed 3,300 100% 3,300
+ Ending Work in Process 1,700 80% 1,360
Equivalent Units of Production
4,910

25. Health Beverage Company uses a process costing system to collect costs related to the production of
its celery flavored cola. The cola is first processed in a Mixing Department at Health and is then
transferred out and finished up in the Bottling Department. The finished cases of cola are then
transferred to Finished Goods Inventory. The following information relates to Health's two departments
for the month of January:

Mixing Bottling
Cases of cola in work in process, January 1 ................... 10,000 3,000
Cases of cola completed/transferred out during
January ......................................................................... 77,000 ?
Cases of cola in work in process, January 31 ................. 4,000 8,000

How many cases of cola were completed and transferred to Finished Goods Inventory during January?
a. 66,000
b. 71,000
c. 72,000
d. 74,000

To solve for units transferred:

+ Work in process, beginning ................................................ 3,000
+ Units started into production during the month .................. 77,000
− Work in process, ending ..................................................... 8,000
= Units completed and transferred out during the month...... 72,000

26. The Assembly Department started the month with 83,000 units in its beginning work in process
inventory. An additional 334,000 units were transferred in from the prior department during the month to
begin processing in the Assembly Department. There were 34,000 units in the ending work in process
inventory of the Assembly Department.
How many units were transferred to the next processing department during the month?
A) 417,000
B) 285,000
C) 451,000
D) 383,000

To solve for units transferred:

+ Work in process, beginning ............................................. 83,000
+ Units started into production during the month ............... 334,000
− Work in process, ending .................................................. 34,000
=Units completed and transferred out during the month ... 383,000
27. Colby Company has a process costing system in which the weighted-average method is used. The
company adds all materials at the beginning of the process in the Molding Department, which is the first
of two stages of its production process. Information concerning the materials used in the Molding
Department during March is as follows:

Materials
Units Costs
22,00
Work in process at March 1 ............................................ 0 P11,000
90,00
Units started during March .............................................. 0 P46,120
Units completed and transferred to next department 97,00
during March ................................................................ 0

What was the materials cost of the work in process inventory at March 31?
a. P11,220
b. P7,500
c. P5,100
d. P7,650

To solve for ending work in process:

+ Work in process, beginning .................................................. 22,000
+ Units started into production during the month .................... 90,000
− Units completed and transferred out during the month ........ 97,000
= Work in process, ending ....................................................... 15,000

Equivalent units of production

Materials
Transferred to next department ......................................... 97,000
Ending work in process (materials: 15,000 units × 100%
complete) ........................................................................ 15,000
Equivalent units of production ............................................ 112,000

Cost per Equivalent Unit

Materials
Cost of beginning work in process ..................................... P11,000
Cost added during the period............................................. 46,120
Total cost (a) ...................................................................... P57,120

Equivalent units of production (b) ...................................... 112,000

Cost per equivalent unit, (a) ÷ (b) ...................................... P0.51

Materials
Ending work in process inventory:
Equivalent units of production (materials: 15,000 units ×
100% complete; conversion: 15,000 units × %
complete) ........................................................................ 15,000
Cost per equivalent unit ..................................................... P0.51
Cost of ending work in process inventory .......................... P7,650
28. Which of the following are needed to compute the cost per equivalent unit for materials under the
weighted-average method of process costing?

Material cost assigned to beginning Material cost added to production

work in process last period during the current period
A) Yes Yes
B) No Yes
C) Yes No
D) No No

29. Under which of the following conditions will the FIFO method of process costing result in the same
amount of cost being transferred to the next department as the weighted-average method?
A) When the beginning and ending inventories are each fifty percent complete.
B) When there is no beginning inventory.
C) When there is no ending inventory.
D) When units in the beginning inventory are all completed and transferred at the same time.

30. In order to compute equivalent units of production using the FIF0 method of process costing, work for
the period must be broken down into parts:
A) completed during the period and units in ending inventory.
B) completed from beginning inventory, started and completed during the month, and units in ending
inventory.
C) started during the period and units transferred out during the period.
D) processed during the period and units completed during the period.

31. Which of the following statements is correct?

I. Job order cost sheets constitute the subsidiary ledger of the control account Work In Process Inventory.
II. In a job order cost system, each entry to the Work In Process Inventory account should be
accompanied by a posting to one or more job cost sheets.
a. Statement I only
b. Statement II only
c. Both statements are correct
d. Both statements are incorrect

32. Which of the following statements is correct?

I. Direct materials requisitioned from the storeroom should be charged to the Work In Process Inventory
account and the job cost sheets for the individual jobs on which the material was used.
II. Manufacturing overhead is the only product cost that can be assigned to jobs as soon as the costs are
incurred.
a. Statement I only
b. Statement II only
c. Both statements are correct
d. Both statements are incorrect

33. The two basic types of cost accounting systems are

a. job order and job accumulation systems.
b. job order and process cost systems.
c. process cost and batch systems.
d. job order and batch systems.

34. An important feature of a job order cost system is that each job
a. must be similar to previous jobs completed.
b. has its own distinguishing characteristics.
c. must be completed before a new job is accepted.
 d. consists of one unit of output.

35. The flow of costs in a job order cost system

a. involves accumulating manufacturing costs incurred and assigning the accumulated costs to work
done.
b. cannot be measured until all jobs are complete.
c. measures product costs for a set time period.
d. generally follows a LIFO cost flow assumption.

36. Which of the following is not a control account?

a. Manufacturing Overhead
b. Factory Labor
c. Accounts Receivable
d. Raw Materials Inventory

37. Materials requisition slips are costed

a. by production supervisors.
b. by factory personnel who work on the production line.
c. after the goods have been sold.
d. using any of the inventory costing methods.

38. Conceptually, any under- or overapplied overhead at the end of the year should be allocated among all
of the following except
a. cost of goods sold.
b. ending work in process inventory.
c. ending raw materials inventory.
d. ending finished goods inventory.

39. The Manufacturing Overhead account shows debits of P20,000, P24,000, and P28,000 and one credit
for P76,000. Based on this information, manufacturing overhead
a. has been overapplied.
b. has been underapplied.
c. has not been applied.
d. shows a zero balance.

40. Selected data concerning the past fiscal year's operations (000's omitted) of the Stanley Manufacturing
Company are presented below:

INVENTORIES
Beginning Ending
Raw materials P 90 P 85
Work in process 50 65
Finished goods 100 90
Other data:
Raw materials used P365
Total manufacturing costs charged to production during
the year (includes raw materials, direct labor, and factory
overhead) 680
Cost of goods available for sale 765
Selling and general expenses 250

The cost of raw materials purchased during the year amounted to:
a. P455.
b. P450.
c. P365.
d. P360.
 Raw materials used P365
Add ending inventory of raw materials 85
Materials available during the year P450
Less beginning inventory of raw materials 90
Purchases of raw materials during the year P360

41. Mountain Company produced 20,000 blankets in June to be sold during the holiday season. The
manufacturing costs were:

Direct materials P125,000

Direct labor 55,000
Factory overhead 60,000

Management has decided that the mark-on percentage necessary to cover the product’s share of selling
and administrative expenses and to earn a satisfactory profit is 30%. The selling price per blanket
should be:

a. P12.00.
b. P15.60.
c. P23.60.
d. P31.20.

Direct materials P125,000

Direct labor 55,000
Factory overhead 60,000
Total manufacturing costs P240,000

P240,000 / 20,000 units = P12.00 cost per unit

P12.00 x 30% = P3.60 + P12.00 = P15.60

42. The Mason Corporation budgeted overhead at P240,000 for the period for Department A based on a
budgeted volume of 60,000 direct labor hours. During the period, Mason started and completed Job
B25, which incurred 200 labor hours at a cost of P2,200, and P5,000 of direct materials. What was the
cost of Job B25?
a. P7,400
b. P8,000
c. P7,250
d. P13,800

Predetermined overhead rate = Budgeted factory overhead

Budgeted direct labor hours

P240,000/ 60,000 hours = P4/ direct labor hour

Direct material P5,000

Direct labor 2,200
Applied factory overhead - 200 hours x P4 800
Total job cost P8,000

Use the following information to answer the next two questions

Beginning direct materials inventory P100, 000

 Purchases of direct materials 250, 000
Ending direct materials inventory 80, 000
Beginning work in process inventory 200, 000
Direct labor used 250, 000
Manufacturing overhead 175, 000
Ending work in process inventory 210, 000

43. The manufacturing costs are:

a. P350, 000
b. P695, 000
c. P685, 000
d. P270, 000

44. Cost of goods manufactured is:

a. P350, 000
b. P695, 000
c. P685, 000
d. P270, 000

45. Joseph Bryan Company has the following data pertaining to the year ended December 31:

Purchases P450, 000

Beginning inventory 170, 000
Ending inventory 210, 000
Freight-in 50, 000
Freight out 75, 000

How much is the cost of goods sold for the year?

a. 385, 000
b. 460, 000
c. 485, 000
d. 540, 000

46. Job 910 was recently completed. The following data have been recorded on its job cost sheet:

Direct materials ............................. P3,193

Direct labor-hours.......................... 21 labor-hours
Direct labor wage rate ................... P12 per labor-hour
166 machine-
Machine-hours............................... hours

The company applies manufacturing overhead on the basis of machine-hours. The predetermined
overhead rate is P15 per machine-hour. The total cost that would be recorded on the job cost sheet for
Job 910 would be:
a. P3,220
b. P3,760
c. P5,935
d. P3,445

Direct materials ................................................................................ P3,193

Direct labor (21 hours × P12 per hour) ............................................ 252
 Manufacturing overhead (166 hours × P15 per hour) ..................... 2,490
Total manufacturing cost for job 910 ............................................... P5,935

47. Darrow Company uses a predetermined overhead rate based on direct labor-hours to apply
manufacturing overhead to jobs. Last year, the company worked 10,000 direct labor-hours and incurred
P80,000 of actual manufacturing overhead cost. If overhead was underapplied by P2,000, the
predetermined overhead rate for the company for the year must have been:
a. P7.80
b. P8.00
c. P8.20
d. P8.40

Actual manufacturing overhead − Applied manufacturing overhead = underapplied

P80,000 − Applied = P2,000
Applied = P78,000

Direct labor-hours × Predetermined overhead rate = Applied manufacturing overhead

10,000 × Predetermined overhead rate = P78,000
Predetermined overhead rate = P78,000 ÷ 10,000 direct labor-hours
Predetermined overhead rate = P7.80 per direct labor-hour

48. Collins Company uses a predetermined overhead rate based on direct labor cost to apply
manufacturing overhead to jobs. The following information applies to the company for the current year:

Direct labor-hours:
Estimated for the year ................ 24,000
Actual hours worked .................. 19,500
Direct labor cost:
P300,00
Estimated for the year ................ 0
P210,00
Actual cost incurred ................... 0
Manufacturing overhead:
P240,00
Estimated for the year ................ 0
P185,00
Actual cost incurred ................... 0

The manufacturing overhead cost for the current year will be:
a. P17,000 overapplied
b. P17,000 underapplied
c. P55,000 overapplied
d. P55,000 underapplied.

Predetermined overhead rate = P240,000 ÷ 300,000 direct labor cost

= 80% of direct labor cost

Actual manufacturing overhead ...................................... P185,000

Applied manufacturing overhead (80% of P210,000) .... 168,000
Manufacturing overhead underapplied ........................... P 17,000

49. Chipata Corporation applies manufacturing overhead to jobs on the basis of machine-hours. Chipata
estimated 25,000 machine-hours and P10,000 of manufacturing overhead cost for the year. During the
year, Chipata incurred 26,200 machine-hours and P11,300 of manufacturing overhead. What was
 Chipata's underapplied or overapplied overhead for the year?
A) P480 overapplied
B) P820 underapplied
C) P1,300 overapplied
D) P1,300 underapplied

Predetermined overhead rate = P10,000 ÷ 25,000 machine-hours

= P0.40 per machine-hour

Actual manufacturing overhead ...................................... P11,300

Applied manufacturing overhead (26,200 × P0.40)........ 10,480
Manufacturing overhead underapplied ........................... P 820

50. Serritella Manufacturing Corporation uses a job-order costing system. At the beginning of the year,
Serritella had P38,000 in its Work in Process inventory account. The following information relates to
Serritella's operations for the year:

P114,00
Direct materials cost assigned to production .................. 0
Direct labor cost assigned to production ........................ P78,000
Selling, general, and administrative expenses incurred . P25,000
P296,00
Manufacturing overhead cost incurred ........................... 0
Underapplied manufacturing overhead cost ................... P11,000
P502,00
Cost of goods manufactured ........................................... 0
P509,00
Cost of goods sold .......................................................... 0

What is the balance in Serritella's Work in Process inventory account at the end of the year? (Assume
that the Manufacturing Overhead account has not yet been closed out.)
a. P13,000
b. P24,000
c. P35,000
d. P60,000

Work in Process
Cost of goods
Bal. 38,000 manufactured 502,000
Direct material 114,000
Direct labor 78,000
*Applied Mfg.
Overhead 285,000
Bal. 13,000

*Actual manufacturing Applied manufacturing Underapplied

− =
overhead overhead manufacturing overhead

Applied manufacturing
P296,000 − = P11,000
overhead

Applied manufacturing overhead = P 285,000

50. In backflush costing, if the conversion cost in the Raw and In Process was P500 on July 1 and P1,000
on July 31, the account to be credited at the end of July for the P500 increase would be:
a. Raw and In Process
b. Finished Goods
c. Raw Materials
d. Cost of Goods Sold

51. Marion Corporation, which produces unique office furniture, recently installed a just-in-time production
system. The various steps in the company's manufacturing process are coordinated by using a
philosophy known as:
a. supply pull.
b. demand pull.
c. supply push.
d. demand push.

52. When deciding whether to sell a product at the split-off point or process it further, joint costs are not
usually relevant because:
a. such amounts do not help to increase sales revenue.
b. such amounts only slightly increase a company's sales margin.
c. such amounts are sunk and do not change with the decision.
d. such amounts reflect opportunity costs

53. Foster Company is considering whether to sell Retox at the split-off point or subject it to further
processing and produce a more refined product known as Retox-F. Consider the following items:
I. The selling price of Retox-F
II. The joint processing cost of Retox.
III. The separable cost of producing Retox-F.
Which of the above items is (are) relevant to Foster's decision to process Retox into Retox-F?
a. I only.
b. I and II.
c. I and III.
d. II only.

54. When allocating service department costs, companies should use:

a. actual costs rather than budgeted costs, and separate rates for variable and fixed costs.
b. budgeted costs rather than actual costs, and separate rates for variable and fixed costs.
c. budgeted costs rather than actual costs, and a rate that combines variable and fixed costs.
d. actual costs rather than budgeted costs, and a rate that combines variable and fixed costs.

55. When the step-down method is used, the service department whose costs are allocated first is often the
department that:
a. obtains the highest yield.
b. has the lowest cost.
c. serves the greatest number of other service departments.
d. serves the fewest other service departments.

56. After careful planning, Change Style, Inc. has decided to switch to a just-in-time inventory system
effective on July 1 of the current year. As of July 1, the corporation has 70 units of product in inventory.
It has 1,000 labor hours available for the month of July. These hours could produce 250 units of
product. Customer demand for July is 200 units. If just-in-time principles are correctly followed, how
many units should Change Style Inc. plan to produce in July?
a. 200
b. 130
c. 180
 d. 250

Solution: Demand 200

Less beginning inventory 70
Needed Production 130

57. Lido manufactures A and B from a joint process (cost = P80,000). Five thousand pounds of A can be
sold at split-off for P20 per pound or processed further at an additional cost of P20,000 and then sold
for P25. Ten thousand pounds of B can be sold at split-off for P15 per pound or processed further at an
additional cost of P20,000 and later sold for P16. If Lido decides to process B beyond the split-off
point, operating income will:
a. increase by P10,000.
b. increase by P20,000.
c. decrease by P10,000.
d. decrease by P20,000.

Sell beyond split-off point: P140,000

Less: Sell at split-off point: P150,000
Income: Decrease of P10,000

58. Rocky Mountain Company produces two products (X and Y) from a joint process. Each product may
be sold at the split-off point or processed further. Additional processing requires no special facilities,
and production costs of further processing are entirely variable and traceable to the products involved.
Joint manufacturing costs for the year were P60,000. Sales values and costs were as follows:

If Processed Further
Units Sales Value Sales Separable
Product Made at Split-off Value Costs
X 9,000 P40,000 P78,000 P10,500
Y 6,000 80,000 90,000 7,500

If the joint production costs are allocated based on the physical-units method, the amount of joint cost
assigned to product X would be:
a. P20,000.
b. P24,000.
c. P30,000.
d. P36,000.

Product X: P60,000 x (9,000/15,000)= P36,000

59. Garvin Corporation manufactures joint products P and Q. During a recent period, joint costs amounted
to P80,000 in the production of 20,000 gallons of P and 60,000 gallons of Q. Garvin can sell P and Q
at split-off for P2.20 per gallon and P2.60 per gallon, respectively. Alternatively, both products can be
processed beyond the split-off point, as follows:
P Q
Separable processing costs P15,000 P35,000
Sales price (per gallon) if processed beyond split-off P3 P4

The joint cost allocated to Q under the relative-sales-value method would be:
a. P40,000.
b. P62,400.
c. P64,000.
d. P65,600.
 Product Q: P80,000 x (P156,000/P200,000) = P62,400

60. Ohio Chemical manufactures two industrial chemicals in a joint process. In October, direct material
costing P120,000 was processed at a cost of P300,000, resulting in 16,000 pounds of Pentex and
4,000 pounds of Glaxco. Pentex sells for P35 per pound and Glaxco sells for P60 per pound.
Management generally processes each of these chemicals further in separable processes to produce
more refined products. Pentex is processed separately at a cost of P7.50 per pound, with the resulting
product, Pentex-R, selling for P45 per pound. Glaxco is processed separately at a cost of P10 per
pound, and the resulting product, Glaxco-R, sells for P100 per pound. Compute the company's total
joint production costs:
a. P240,000
b. P420,000
c. P300,000
d. P160,000

Joint production costs total P420,000 (P120,000 + P300,000).

61. Durango, Inc., has two service departments (Human Resources and Building Maintenance) and two
production departments (Machining and Assembly). The company allocates Building Maintenance cost
on the basis of square footage and believes that Building Maintenance provides more service than
Human Resources. The square footage occupied by each department follows.

Human Resources 5,000

Building Maintenance 9,000
Machining 15,000
Assembly 22,000

Assuming use of the step-down method, over how many square feet would the Building Maintenance
cost be allocated (i.e., spread)?
a. 14,000.
b. 37,000.
c. 42,000.
d. 51,000.

42,000 (HR 5,000 + M 15,000 + A 22,000)

62. Lido manufactures A and B from a joint process (cost = P80,000). Five thousand pounds of A can be
sold at split-off for P20 per pound or processed further at an additional cost of P20,000 and then sold
for P25. Ten thousand pounds of B can be sold at split-off for P15 per pound or processed further at an
additional cost of P20,000 and later sold for P16. If Lido decides to process B beyond the split-off
point, operating income will:
a. increase by P10,000.
b. increase by P20,000.
c. decrease by P10,000.
d. decrease by P20,000.

Sell beyond split-off point: P140,000

Less: Sell at split-off point: P150,000
Income: Decrease of P10,000

M= P140,000 + (291,616*0.33) + (189,162*0.38)= P168,115

63. Saunders Company has two service departments (Cafeteria and Human Resources) and two
production departments (Machining and Assembly). The number of employees in each department
follows.
 Cafeteria 20
Human Resources 30
Machining 100
Assembly 150

Saunders uses the step-down method of cost allocation and allocates cost on the basis of employees.
Human Resources cost amounts to P1,200,000, and the department provides more service to the firm
than Cafeteria. How much Human Resources cost would be allocated to Machining?
a. P0.
b. P428,572.
c. P444,444.
d. P480,000.

Machining: [P1,200,000*(100/270)= P444,444

64. Webster manufactures A, B, and C, all of which are joint products, and D, which is classified as a by-
product. If joint manufacturing costs amount to P450,000 and the company is using a popular
accounting method, the firm will:
a. allocate P450,000 among A, B, and C.
b. allocate P450,000 among A, B, C, and D.
c. increase P450,000 by the net realizable value of D and then allocate the total among A, B, and
C.
d. decrease P450,000 by the net realizable value of D and then allocate the total among A, B, and
C.

65. Suppose that one hog yields 300 pounds of ham, 200 pounds of chops, and 100 pounds of
miscellaneous items. The sales value of ham is P1.20 per pound; chops, P1.50 per pound; and
miscellaneous items, P0.90 per pound. The hog costs P580, and processing costs are P20.
Determine the joint cost allocated to Chops using the physical-units method.
a. P200
b. P100
c. P50
d. P320

Weight @ Split-Off Point | Relative Proportion | Allocation of Joint Cost

Ham 300 pounds 3/6 P300
Chops 200 pounds 2/6 200
Miscellaneous 100 pounds 1/6 100
600 pounds P600

66. The Futaba Manufacturing Company uses a Raw and In Process inventory account. The following data
is for the month of December:
Materials Received on credit ……………….. P 600,000
Conversion costs……………………………... 240,000
Number of units manufactured …………….. 20,000 units
Cost per unit (P28 materials + P12
conversion costs).................................... P40/unit
There are no opening stocks and for simplicity it is assumed that there are no variance. Using the
Method 1(Three Trigger Points) in backflush costing, what is the journal entry in completing the finished
goods.
a. Finished Goods 800,000
Raw and In Process (RIP) 560,000
Conversion Cost 240,000
b. No entry
c. Finished Goods 840,000
 Raw and In Process (RIP) 600,000
Conversion Cost 240,000
d. Finished Goods 600,000
Accounts Payable 600,000

67. Mercury Corporation allocates joint costs by using the net-realizable-value method. In the company's
Michigan plant, products D and E emerge from a joint process that costs P250,000. E is then
processed at a cost of P220,000 into products F and G. Data pertaining to D, F, and G follow.

D F G
Costs beyond split-off P50,000 P27,000 P25,000
Selling price 40 38 50
Pounds produced 10,000 4,000 2,000
What is the Net Realizable Value of Product F?
a. P27,000
b. P137,500
c. P125,000
d. P152,000

SV-Final Prod Costs Past Split-Off Net Realizable Value

F (4,000 x P38) P152,000 P27,000 P125,000

68. Which of the following statements is (are) true about non-value-added activities?
I. Non-value-added activities are often unnecessary and dispensable.
II. Non-value-added activities may be necessary but are being performed in an inefficient and
improvable manner.
III. Non-value-added activities can be eliminated without deterioration of product quality,
performance, or perceived value.

a. I only
b. II only.
c. I and II.
d. I, II, and III.

69. Which of the following statements regarding the pull method is (are) true?
I. Goods are produced in each manufacturing stage only as they are needed at the next stage.
II. The pull method greatly reduces work-in-process inventory.
III. The pull method reduces waiting time and the associated non-value-added cost.

a. II and III.
b. I, II, and III.
c. II only
d. I and II.

70. Determine whether the following items would be apt to increase or decrease as a result of the just-in-
time system:
I. Inventory storage costs.
II. Number of suppliers used.
III. Number of raw material shipments handled.
IV. Dollars available for alternative investment opportunities.
V. Quality of raw materials purchased.
a. Decrease, Increase, Increase, Increase, Increase,respectively.
 b. Decrease, Decrease, Increase, Increase, Increase, respectively.
c. Increase, Decrease, Decrease, Increase, Decrease, respectively.
d. Increase, Decrease, Increase, Increase, Decrease, respectively.

71. . Harold Corporation recently abandoned its traditional production and inventory system in favor of a
just-in-time system. The company typically ordered 700 units of raw material at a time and purchased
units that scored a 7 on a 10-point quality scale, with 10 being very close to perfection. All other things
being equal, which of the following choices denotes a likely scenario under the just-in-time system?
Order Size Quality Purchased
a. 300 7
b. 300 9
c. 700 9
d. 950 7

72. Which of the following would be considered a service department for an airline?
a. Maintenance.
b. Information Systems.
c. Flight Catering.
d. All of the above.

73. Reno Corporation has two service departments (Maintenance and Human Resources) and three
production departments (Machining, Assembly, and Finishing). The two service departments service
each other, and studies have shown that Maintenance provides the greatest amount of service. Given
the various cost allocation methods, which of the following choices correctly denotes whether
Maintenance cost would be allocated to Human Resources?
Direct Step-Down Reciprocal
a. No Yes Yes
b. No No Yes
c. Yes No No
d. No Yes No

74. India Corporation has P200,000 of joint processing costs and is studying whether to process J and K
beyond the split-off point. Information about J and K follows.

Product J Product K
Tons produced 25,000 15,000
Separable variable processing costs beyond split-off P64,000 P100,000
Selling price per ton at split-off 15 52
Selling price per ton after additional processing 21 58

If India desires to maximize total company income, what should the firm do with regard to Products J
and K?
Product J Product K
a. Sell at split-off Sell at split-off
b. Sell at split-off Process beyond split-off
c. Process beyond split-off Sell at split-off
d. Process beyond split-off Process beyond split-off

75. Budde Chemicals produces two industrial chemical compounds, X15 and Z24, from the same process,
which in 2008, cost P300,000. Budde produced 10,000 gallons of X15, which sells for P40 per gallon
and 40,000 gallons of Z24, which sells for P20 per gallon. After the split-off point, X15 required
additional processing costing P200,000 to make it salable. How much of the joint cost should be
allocated to X15?
a. P100,000
b. P200,000
 c. P60,000
d. P75,000

Ultimate Costs Sales Percent Assignment

sales after value at sales of joint
Selling
split-off value
price value split-off costs
Product Gallons
X15 10,000 P40 P 400,000 P200,000 P 200,000 20% P 60,000
Z24 40,000 P20 800,000 0 800,000 80% 240,000
P1,200,000 P200,000 P1,000,000 P300,000

76. If two or more products share a common process before they are separated, the joint costs should be
allocated in a manner that:
a. Assigns a proportionate amount of the total cost to each product by means of a
quantitative basis.
b. Maximizes total earnings.
c. Minimizes variations in a unit of production cost.
d. Does not introduce an element of estimation into the process of accumulating
costs for each product.

77. Melon Company produces joint products A and B from a process that also yields a by-product, Y. The
by-product requires additional processing before it can be sold. The cost assigned to the by-product is
its market value less additional costs incurred after split-off (NRV method). Information concerning a
batch produced in January at a joint cost of P40,000 is as follows:

Product Units Produced Market Value Costs after Split-off

A 800 P44,000 P4,500

B 700 32,000 3,500
C 500 4,000 1,000

How much of the joint cost should be allocated to the joint products?
a. P35,000
b. P36,000
c. P37,000
d. P39,000

78. Mara Manufacturing uses backflush costing to account for an electronic meter it makes. During
August, 2009, the firm produced 16,000 meters of which it sold 15,800. The standard cost for each
meter is:

Direct materials P20

Conversion costs 44
P64

Assume that the firm had no inventory on August 1. The following events took place in August:

1. Purchased P320,000 of direct materials.

2. Incurred P708,000 of conversion costs.
3. AppliednP704,000 of conversion costs to Raw and In Process Inventory ( RIP).
 4. Finished 16,000 meters.
5. Sold 15,800 meters for P100 each.

Compute the amount to be backflushed from RIP to Finished Goods:

A. P 320,000
B. P 704,000
C. P1,024,000
D. P1,028,000

79. Heart Company distributes the services department overhead costs directly to producing departments
without allocation to the other service departments. Information for the month of January is presented
as follows:
Maintenance Utilities
Overhead costs incurred…………………………… P18, 700 P9, 000
Service provided to:
Maintenance department………………… - 10%
Utilities department……………………… 20% -
Producing department A………………… 40% 30%
Producing department B………………… 40% 60%

The amount of utilities department costs distributed to producing department B for January should be

A. P3, 600 C. P5, 400

B. 4, 600 D. 6, 000

80. ABC Company has two service departments (A and D) and two producing departments (X and Y).
Data provided are as follows:

Service Departments Operating Departments

A B X Y
Direct costs P150 P300 P5,000 P6,000
Services performed by Dept. A 40% 40% 20%
Services provided by Dept. B 20% 70% 10%

ABC Company uses the step-down method to allocate service department costs. The service
department cost allocated to Department Y is:

A. P60.00 C. P75.00
B. 66.00 D. 87.50

– NOTHING FOLLOWS –