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2. Explain and illustrate the physical flows and cost flows for a process manufacturer.
Materials are introduced, converted, and passed from one department to the next
department or to finished goods. The accumulated costs transferred from preceding
departments and the costs of direct materials and direct labor incurred in each processing
department are debited to the related work in process account in a process cost system. Each
work in process account is also debited for the factory overhead applied.
3. Calculate and interpret the accounting for completed and partially completed units under
the FIFO method and the average method.
Manufacturing costs must be allocated between the units that have been completed and
those that remain with the department. This allocation is accomplished by allocating costs
using equivalent units of production during the period for the beginning inventory, units
started and completed, and the ending inventory.
AFAR – Cost Accounting – Process, Joint and by-products, and Standard Costing Page 1 of 7
PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY (PRIA)
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
9. Describe the types of standards and how they are established for businesses.
Standards represent performance benchmarks that can be compared to actual results in
evaluating performance. Standards are developed, reviewed, and revised by accountants and
engineers, based upon studies of operations. Standards are established so that they are
neither too high nor too low, but are attainable. The direct materials price standard should
be based on the delivered cost of raw materials plus an allowance for receiving and handling.
The direct materials quantity standard should establish the required quantity plus an
allowance for waste and spoilage. The direct labor rate standard should be based on current
wage rates and anticipated adjustments such as COLAs. In addition, it generally includes
payroll taxes and fringe benefits. Direct labor efficiency standard should be based on
required production time plus an allowance for rest periods, cleanup, machine setup, and
machine downtime. For factory overhead (controllable and volume), standard
predetermined overhead rate is used based on an expected standard activity index.
10. Journalize the entries for recording standards in the accounts and prepare an income
statement that includes variances from standard.
Standard costs and variances can be recorded in the accounts at the same time the
manufacturing costs are recorded in the accounts. Work in Process is debited at standard.
Under a standard cost system, the cost of goods sold will be reported at standard cost.
Manufacturing variances can be disclosed on the income statement to adjust the gross profit
at standard to the actual gross profit.
1. Determine the equivalent production for materials using the following data:
Units Cost
Work in process, beginning
(100% materials, 50% converted) 4,000
Materials P 1,992
Labor 1,074
Factory overhead 846
Put into process 20,000
Materials 12,000
AFAR – Cost Accounting – Process, Joint and by-products, and Standard Costing Page 2 of 7
PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY (PRIA)
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
Labor 9,984
Factory overhead 100% of labor
Completed and transferred 21,000
Work in process, end
(100% materials, 60% converted) 3,000
Under FIFO Under Average Under FIFO Under Average
a. 20,000 24,000 c. 24,000 20,000
b. 21,000 20,000 d. 20,000 21,000
4. Complete the following process account of Lei Manufacturing Company by supplying the
peso amounts of (A) and (B) on the credit side of the account.
Work in Process
May 1 6,000 units May 1-31 16,000 units (A)
1/3 complete 4,800 31 completed
1-31 Materials 2,000 units (B)
12,000 @ P0.50 6,000 ½ completed
Labor 3,600
Overhead 5,400
The peso amount of the 16,000 units completed (A) is
a. P17,800 b. P17,600 c. P18,200 d. P16,400
5. Refer to No. 4. The peso amount of the 2,000 units ½ completed (B) is
a. P2,200 b. P1,600 c. P2,000 d. P1,400
6. The Selina Company uses a process cost system for Product C, which requires four
processes. Work in process in Department 4 shows the following data for May: Balance,
May 1 (1,600 units, ¼ completed) P4.060; From Department 3 (4,300 units) P7,525; Direct
labor P12,250; Factory overhead P3,185. Processing for the month of May consisted of
completing the 1,600 units in process May 1, completing the processing on 3,500 units
and leaving 800 units that are ¼ completed. During June the charges to Work in process,
Department 3 (3,500 units) P8,250; Direct labor P11,760; Factory overhead P2,940. By
June 30 all beginning work in process units were completed. Of the 5,500 new units, 1,500
were left and is 1/5 completed.
The cost of goods completed and transferred to finished goods for June
a. P23,600 b. P18,000 c. P21,830 d. P3,920
7. The following data for the month of September were taken from the cost records of
Department A of NLP which uses average costing:
Units Cost
Work in process, beginning
(all materials, 50% converted) 500
Materials P 2,400
Labor 1,500
Factory overhead 760
Put into production 5,000
Materials 25,100
Labor 19,380
Factory overhead 14,900
Units completed and transferred 4,800
Units in process, end
(all materials, 60% converted) 700
The unit cost of material for the month is
a. P5.00 b. P5.50 c. P4.00 d. P4.50
8. Refer to No. 7. The equivalent production for labor is
a. 7,200 b. 5,220 c. 4.970 d. 5,500
AFAR – Cost Accounting – Process, Joint and by-products, and Standard Costing Page 3 of 7
PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY (PRIA)
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
9. Lucas Co. adds materials in the beginning of the process in the Forming Dept. which is the
first of two stages of its production cycle. Data for materials in October follows:
Units Costs
Work in process, October 1 6,000 P 3,000
Units started in October 50,000 25,560
Units completed and transferred 44,000
Using the weighted-average method, what was the material cost of work in process at
October 31?
a. P3,000 b. P5,520 c. P6,000 d. P6,120
Process Costing (Accounting for lost units – inspection point – end of process only)
12. Refer to No. 11. What is the cost assigned to normal spoilage and how is it classified using
weighted average?
a. P6,193 allocated between WIP and Transferred out
b. P6,424 assigned to units transferred out
c. P6,193 assigned to loss account
d. P6,193 assigned to units transferred out
13. Refer to No. 11. What is the total cost assigned to goods transferred out using weighted
average?
a. P435,080 b. P429,824 c. P428,656 d. P423,400
14. The following information is available for OP Co. for the current year: Beginning work in
process (75% complete) 14,500 units; Started 75,000 units; Ending work in process (60^
complete) 16,000 units; Abnormal spoilage 2,500 units; Normal spoilage (continuous)
5,000 units; Transferred out 66,000 units; Cost of beginning work in process P25,100
Materials and P50,000 Conversion; Current cost P120,000 Materials and P300,000
Conversion. All materials are added at the start of production. What is the cost assigned
to ending Work in process using weighted average?
a. P100,800 b. P87,430 c. P103,180 d. P70,528
15. Pop Cola Company produces a soft drink in three departments: Syrup, Carbonation, and
Bottling. Syrup, which gives the drink its flavor, is produced in the first department. The
syrup is then transferred to the second department where carbonated water is added to
give the drink its fizz. After carbonated water has been added, the liquid drink is bottled
for storage and transport to customers. A process cost system with average cost flow
AFAR – Cost Accounting – Process, Joint and by-products, and Standard Costing Page 4 of 7
PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY (PRIA)
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
assumption is used to account for work in process inventories. Data related to operations
in the Carbonation Department during the month of October are;
Units in beginning inventory 1,000
Units received from the Syrup Department this period 2,000
Units added to process in the Carbonation Department this period 6,000
Units transferred to Bottling Department this period 7,800
Units in ending inventory (100% materials, 25% converted) 1,200
16. Joint products A, B, and C are produced by JNT Corp. Joint cost for the period amounted
to P49,830. There were no beginning inventories. For the current month, these are
available:
A . B . C .
Units produced 8,500 9,700 6,900
Cost after split-off P10,200 P19,400 P 6,900
Ultimate unit selling price P 6.00 P 5.00 P 4.00
Units sold 8,400 9,700 6,400
Assuming the average unit cost method is used in apportioning the joint product cost, its
cost per unit is
a. P2.033 b. P1.985 c. P2.045 d. P2.106
17. Refer to No. 16. Using the market value method, the joint cost apportioned to each
product will be
a. P22,652; P13,843; P13,333 c. P22,440; P16,005; P11,385
b. P19,995; P19,014; P10,821 d. P24,357; P14,885; P10,588
18. Refer to No. 17. Total production cost for each product will be
a. P32,852; P33,243; P20,235 c. P30,195; P38,414; P17,721
b. P32,640; P35,405; P18,285 d. P34,457; P34,285; P17,488
19. Refer to No. 17. Cost of sales for each product will be
a. P32,256; P35,405; P16,960 c. P31,872; P35,405; P15,635
b. P29,840; P38,414; P16,437 d. P34,173; P34,285; P16,163
20. Comely Products manufactures three products R, S, and T in a joint process. For every ten
kilos of raw materials input, the output is five kilos of R, three kilos of S, and two kilos of
T. During August, 50,000 kilos of raw materials costing P120,000 were processed and
completed, with joint conversion costs of P200,000. Conversion costs are to be allocated
to the products on the basis of market values. To make the products salable, further
processing which does not require additional raw materials was done at the following
costs: R P30,000; S P20,000; T P30,000. The unit selling prices are: R P10; S P12; T P15.
The unit cost of Product R is
a. P7.12 b. P8.00 c. P10.00 d. P25.32
21. Refer to No. 20. Assuming that all units are sold, the gross profit on sales for Product S is
.a. P80,000 b. P72,000 c. P60,000 d. P48,000
22. Refer to No. 20. If all units of Product T are sold, and selling and administrative expenses
are 20% of sales, the net income from the sale of Product T is
a. P18,000 b. P22,000 c. P24,000 d. P64,000
23. Mardon Company produces joint products Jana and Rota together by-product Bond. Jana
is sold at split-off but Rota and Bond undergo additional processing. Production data
pertaining to these products for the year ended December 31, 2007 are as follows:
Jana Rota Bond Total
Joint costs P236,000
Separable costs P210,000 P 5,000 215,000
Production in pounds 50,000 40,000 10,000 100,000
AFAR – Cost Accounting – Process, Joint and by-products, and Standard Costing Page 5 of 7
PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY (PRIA)
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
Sales price per pound P 4.00 P 7.50 P 1,10
There are no beginning or ending inventories. Joint costs are allocated to joint products
to achieve the same gross profit rate for each joint product. Net revenue from by-product
is deducted from joint production costs of the main products. The gross profit for Rota is
a. P24,000 b. P36,000 c. P60,000 d. P0
24. A chemical company manufactures joint products Pep and Vim and a by-product Zest.
Costs are assigned to the joint products by the market value method, which considers
further processing costs in subsequent operations. For allocating cost to the by-product,
the market value, or reversal cost method is used. Total manufacturing costs for 10,000
units were P172,000 during the quarter. Production and cost data follow:
Pep Vim Zest
Units produced 5,000 4,000 1,000
Sales price per unit P50.00 P40.00 P 5.00
Further processing cost per unit P10.00 P 5.00 --
Operating expense per unit P 2.00
Operating income per unit P 1.00
The value of Zest to be deducted from the joint cost is
a. P5,000 b. P3,000 c. P2,000 d. P2,800
Standard Costing
26. The Rex Company produces a product using standard costs as follows:
Standard cost per unit:
Materials - 7 kilos @ P3.50 per kilo
Labor - 8 hours @ P1.75 per hour
Factory overhead:
Variable - P1.15 per hour @ P9.20 per unit
Fixed - P0.85 per hour @ P6.80 per unit
Overhead applied based on direct labor hours
30. Guiller Co. manufactures one product with a standard direct labor cost of four hours @
P12.00 per hour. During June, 1,000 units were produced using 4,100 hours @ P12.20 per
hour.
The unfavorable direct labor efficiency variance is
a. P1,220 b. P1,200 c. P820 d. P400
31. Tub Company uses a standard cost system. The following information pertains to direct
labor for Product B for the month of October: Actual rate paid P8.40 per hour; Standard
rate P8.00 per hour; Standard hours allowed for actual production 2,000 hours; Labor
efficiency variance P1,600 unfavorable.
What were the actual hours worked?
a. 1,800 b. 1,810 c. 2,100 d. 2,200
AFAR – Cost Accounting – Process, Joint and by-products, and Standard Costing Page 6 of 7
PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY (PRIA)
ADVANCED FINANCIAL ACCOUNTING AND REPORTING (AFAR)
32. Universal Company uses standard cost system and prepared the following budget at
normal capacity for the month of January 2007: Direct labor hours 24,000; Variable
factory overhead P48,000; Fixed factory overhead P108,000; Factory overhead per direct
labor hour P6.50. The actual data for January were as follows: Direct labor hours worked
22,000; Total factory overhead P147,000; Standard direct labor hours allowed for
capacity attained 21,000.
Using the two-way analysis of overhead variances, what is the controllable variance for
January?
a. P3,000 F b. P5,000 F c. P9,000 F P10,500 U
33. Ellery Company’s budgeted fixed overhead costs are P50,000 per month plus a variable
factory overhead rate of P4.00 per direct labor hour. The standard direct labor hours
allowed for October production were 18,000. An analysis of factory overhead indicates
that, in October, Ellery had an unfavorable budget (controllable) variance of P1000 and a
favorable volume variance of P500. Ellery uses a two-way analysis of overhead variance.
The actual factory overhead incurred in October is
a. P121,000 b. P122,000 c. P122,500 d. P123,000
35. Nicole Company uses a standard costing system in connection with the manufacture of a
“one size fits all” article of clothing. Each unit of finished product contains 2 yards of direct
materials. However, a 20% direct material spoilage calculated on input quantities occur
during the manufacturing process. The cost of the direct material is P3.00 per yard.
The standard direct material cost per unit of finished product is
a. P4.80 b. P6.00 c. P7.20 d. P7.50
END.
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