aFar – Cost accounting

PROBLEM NO. 1 – cost Classification

Complete the cost classification diagram using the definitions given.

(5)
(3)
(6)

(1)
(7)

(4) (8)
Stock valuation

(10) (9)

(2) (11)

(12)

(13)

Cost behavior (14)

(15)
Decision making
(16)
Time
Relevance (17)
Other
classifications

(18)
Controllability
(19)
Control purposes
(20)
Normality
(21)
 aFar – cost accounting
Definitions:
1. Costs incurred to produce a product.
2. Costs incurred by all activities that support the production of goods and services.
3. Costs incurred for a particular product unit or batch.
4. Costs that that are not traceable to a product unit or batch.
5. Costs of physical inputs into the production process that can be easily traced to a product without any extra cost or
inconvenience (e.g., leather and sole for a shoe making industry).
6. Costs of physical and mental human input in a production process that can be physically traced to the creation of product
without undue cost (e.g., wages paid to sewing machine operators).
7. Costs of physical inputs into the production process that become an integral part of the finished product but may be
traceable into the product only at great cost or inconvenience (e.g., glue and thread for a shoe making industry).
8. Costs of physical and mental human input in a production process that cannot be readily identified with specific product
units or batches (e.g., wages paid to factory supervisors, forklift truck drivers, etc.).
9. E.g., depreciation of factory building, electricity and water used in production, etc.
10. Costs associated with the securing of orders from customers (e.g., salaries paid to salesmen and expenditure on
advertising).
11. Costs associated with the warehousing of products and their delivery to customers (e.g., depreciation of distribution
van).
12. Costs associated with the overall management of the enterprise (e.g., salary human resource officer, taxes and licenses,
depreciation of office building, etc.).
13. Costs that increase or decrease, in total, in direct proportion to changes in the total level of activity or number of units
produced (e.g., fuel cost based on mileage).
14. Costs that do not change with the level of output. Also known as autonomous costs (e.g., depreciation on a straight-line
basis, fixed rental payments, etc.).
15. Costs which remain constant to a particular activity level (threshold), but increases proportionately in response to any
increase in level of activity level beyond the threshold (e.g., salary of salesmen plus commission).
16. Costs that were incurred at a given time in the past (e.g., acquisition cost of an asset).
17. Costs that have been estimated for purposes of decision-making (e.g., applied manufacturing overhead).
18. Costs which can be influenced by the actions of a person whom authority for such control is vested (e.g., a decision to
hire more personnel to an organization at affordable rates).
19. Costs which cannot be influenced by a person in whom authority for such control is vested (e.g., demand of trade union
for an increase in wages, depreciation of a building, etc.).
20. Costs that are expected to be incurred given a specific level of production (e.g., evaporation of liquid products during
processing).
21. Costs that are above the expected amount to be incurred given a specific production level (e.g., product spoilage due to
human error during processing).
 aFar – cost accounting
PROBLEM NO. 2 – Material stock levels
The following information was extracted from the books of Alpha, Inc. regarding its stocks:
Reorder quantity 1,800 Minimum consumption 150 units/week
Reorder period 4 weeks Maximum reorder period 5 weeks
Maximum consumption 450 units/week Minimum reorder period 3 weeks
Normal consumption 300 units/week

REQUIRED: (1) Re-order level, (2) Maximum stock level, (3) Minimum stock level
PROBLEM NO. 3 – economic order quantity 1
Beta Enterprises has an aggregate demand of 1,200,000 units. Each time they place an order, there is an ordering cost of
P1,000. Holding cost is P100 per unit.
REQUIRED: (1) EOQ, (2) No. of orders to be made based on EOQ, (3) Total cost of stocks based on EOQ
PROBLEM NO. 4 – economic order quantity 2
Charlie Corporation purchases 15,000 one-quarter-carat diamonds each year for various mountings. The following
information relating to the diamonds is available:
Purchase cost per diamond P200
Cost to carry one diamond in inventory for one year 5
Cost of placing one order to the company’s supplier 40
The maximum order that the insurance company will permit is 750 diamonds. The minimum order that the supplier will
permit is 150 diamonds, with all orders required to be in multiples of 150 diamonds. The company has been purchasing the
maximum allowable volume of 750 diamonds per order.
REQUIRED: Determine the volume the company should be placing its orders.
PROBLEM NO. 5 – economic order quantity 3
Delta Company uses 50,000 widgets per annum, which are acquired at P100 each. The ordering and handling costs are P150
per order and carrying costs are 15% of the cost of inventory per annum.
REQUIRED: Calculate the economic order quantity.
 aFar – cost accounting
PROBLEM NO. 6 – material costing methods
Echo Industries, Inc. record of transactions for February were as follows:
Units Unit cost (P)
February 1 Beginning inventory 1,400 10.00

Received February 4 600 10.40

8 600 10.40
13 2,000 10.20
21 800 11.00
29 600 11.20
4.600

Issued February 3 800

9 1,000
11 600
23 1,200
27 1,600
5,200

REQUIRED: Compute (a) the cost of materials and (b) the cost assigned to the inventory at the end of the month, using the
following costing systems and methods:
1. Periodic inventory system
1.1. FIFO costing method
1.2. Weighted average costing method
2. Perpetual inventory system
2.1. FIFO costing method
2.2. Weighted average costing method
PROBLEM NO. 7 – payroll accounting
Foxtrot Company has the following information regarding its payroll for the month ended January 31, 2019 (26 regular
working days):
Machine operators P45,000 per day
Factory supervisors 6,000
Sales representatives 5,400
Officers 3,600
Withholdings from gross earnings of employees:
Income taxes 15%
SSS contributions 3%
Medicare contributions 2%
Pag-ibig contributions P400 per day
Employer’s contributions:
SSS contributions 5%
Medicare contributions 2%
Pag-ibig contributions P400 per day
 aFar – cost accounting
Payroll cut-off is on January 31, 2019. Payroll each month is paid every 5th day of the following month.
REQUIRED: Provide journal entries to record the payroll transactions.
PROBLEM NO. 8 – Process costing: even application of cost, no loss
The following data were taken from the books of Golf Manufacturing Company, which manufactures small dolls in two
successive departments.
Department 1 Department 2
Units:
Work in process, Dec. 1 4,000 25% 10,000 40%
Started in process 36,000
Transferred in 30,000
Work in process, Dec 31 10,000 50% 10,000 40%
Costs:
Work in process Dec. 1 P19,750 P70,000
Costs added in Dec.
Materials P129,200 P33,000
Labor P85,000 P93,000
Factory overhead P49,300 P123,000

REQUIRED: Cost of production report using (1) FIFO and (2) average methods
PROBLEM NO. 9 – Process costing: uneven allocation of cost, no loss
The following data were taken from the books of Hotel Corporation.
Department 1
Materials Conversion Cost
Units:
Work in process, Dec. 1 4,500 80% 30%
Started in process 20,000
Work in process, Dec 31 5,000 45% 55%
Costs:
Work in process Dec. 1 P20,600
Costs added in Dec.
Materials P49,912
Labor P67,089
Factory overhead P29,300

REQUIRED: Cost of production report using (1) FIFO and (2) average methods
 aFar – cost accounting
PROBLEM NO. 10 – Process costing: uneven application of cost, with abnormal loss
The following data were taken from the books of India, Inc.
Department 1
Materials Conversion Cost
Units:
Work in process, Dec. 1 3,500 90% 10%
Finished and transferred 17,500
Work in process, Dec 31 4,000 20% 80%
Abnormal loss 70%
Costs:
Work in process Dec. 1 P15,000
Costs added in Dec.
Materials P20,250
Labor P111,400
Factory overhead P46,000

REQUIRED: Cost of production report using (1) FIFO and (2) average methods
PROBLEM NO. 11 – Process costing: uneven application of cost, with normal loss
The following data were taken from the books of Juliet Corporation.
Department 1
Materials Conversion Cost
Units:
Work in process, Dec. 1 40,000 3/5 1/10
Finished and transferred 160,000
Work in process, Dec 31 24,000 1/3 4/5
Abnormal loss 4,000
Costs:
Work in process Dec. 1 P60,000
Costs added in Dec.
Materials P222,000
Labor P148,000
Factory overhead P74,000

REQUIRED: Cost of production report using (1) FIFO and (2) average methods
PROBLEM NO. 12 – scrap materials
Kilo Co. accumulates sawdust and sells it monthly to a scrap dealer. Sales amounted to P5,000.
REQUIRED: Provide journal entries for the 4 possible accounting treatments for scrap materials.
PROBLEM NO. 13 – spoilage chargeable to a particular job (due to customer specifications)
Lima Glass, Inc. manufactures 11,000 glass units for Angela, Inc. on Job 001. After the first 1,000 glass units are completed,
Angela, Inc. changes the design to suit the current trand. These 1000 glass units cannot be used by the customer and cannot
be corrected to the present condition. Katherine can still sell the 1,000 glass units as scrap for P5,20 each. In order to meet
Angela’s demand, 1,000 glass units are further produced, resulting in a total of 11,000 glass units (spoilage of 1,000 glass
units; 10,000 acceptable glass units). The total costs charged to Job 001 follows:
Materials P33,600
Direct labor 24,000
Factory overhead 48,000
 aFar – cost accounting
Total costs charged to Job No. 001 at P9.60 per glass unit P105,600
REQUIRED: Provide journal entries to record the following:
(1) Completion of Job No. 001
(2) Sale of acceptable glass units from Job No. 001 to Angela, Inc. at 30% mark-up on cost
(3) Sale of spoiled goods on account
PROBLEM NO. 14 – spoilage chargeable to all productions (due to internal failure)
Assume the same data from Problem No. 13, except that the 1,000 spoiled glass resulted from a defect because of an
employee error, the cost of each glass to manufacture is P9.60 (P105,600 total cost divided by 11,000 glass units)
REQUIRED: Provide journal entries to record the following:
(1) Completion of Job No. 001
(2) Sale of acceptable glass units from Job No. 001 to Angela, Inc. at 30% mark-up on cost
PROBLEM NO. 15 – rework chargeable to a particular job
Mike Steel Cabinet Company produces steel cabinets. During the current period an order for 100 steel cabinets was begun
on Job No. 002 for Globe Office Equipment Enterprise. Steel cabinets are marked up 130% of costs. Total costs charged to
Job No. 002 are:
Materials P200,000
Direct labor (P200/hr * 500 hrs) 100,000
Applied factory overhead (P300/hr * 500 hrs) 150,000
Total costs charged to Job No. 002 (at P400/Steel cabinet) P450,000
Before delivery of the merchandise, an inspection takes place and 10 of steel cabinets were found to have defects as a result
of a change in design specified by the customer. The cost of rework added to Job No. 002 were:
Materials (P400 * 10) P4,000
Direct labor (3/4 hour per cabinet * P200 *10) 1,500
Applied factory overhead (3/4 hour per cabinet * P200 *10) 2,250
Total rework costs added to Job No. 002 P7,750
REQUIRED: Provide journal entries to record the following:
(1) Cost of rework on Job No. 002
(2) Transfer of completed steel cabinets to warehouse
(3) Sale on account and shipment of Job No. 002
 aFar – cost accounting
PROBLEM NO. 16 – rework chargeable to all productions
Assume the same facts from Problem No. 15, except that the defective steel cabinets are the result of an internal failure (i.e.,
an employee error or machine failure).
REQUIRED: Provide journal entries to record the following:
(1) Cost of rework on Job No. 002
(2) Transfer of completed steel cabinets to warehouse
(3) Sale on account and shipment of Job No. 002