Advance Financial Accounting and Reporting

Job Order Costing

Part I: Theory of Accounts

1. Which of the following statements concerning the comparison among actual costing, normal
costing and standard costing is correct?
a. Actual costing system values manufactured products with the actual material costs, actual
direct labor costs, and actual manufacturing overhead costs.
b. Normal costing system values manufactured products with the actual material costs, actual
direct labor costs and manufacturing overhead based on a predetermined manufacturing
overhead rate with the possible over/under application of factory overhead to be closed to costs
of goods sold only if insignificant or to be closed prorated to cost of goods sold, work in
process and finished goods inventory if significant.
c. Standard costing system values manufactured goods with predetermined material cost,
predetermined direct labor cost, and a predetermined manufacturing overhead costs with the
possible over/under application of factory overhead to be closed to costs of goods sold only if
insignificant or to be closed prorated to cost of goods sold, work in process and finished goods
inventory if significant.
d. All of the above.

2. Which of the following instances will decrease the cost of goods manufactured for the period
ended?
a. Increase in the finished goods during the period.
b. Decrease in the direct labor cost from prior year.
c. Increase in the work in process inventory during the period.
d. Decrease in the raw materials inventory during the period.

3. When shall the job order costing be used instead of process costing?
a. When the production process performs standardized or uniform procedures.
b. When the company performs a very long production runs.
c. When the company intends to use it for billing customers.
d. When the company produces low-value and homogeneous products.

4. Which of the following costs shall be considered prime cost, conversion cost and product cost at
the same time?
a. Acquisition price of the main material of the product.
b. Depreciation of the machinery used to manufacture the product.
c. Salary of the factory supervision, factory janitor and factory security guard.
d. Employee benefits of the factory machine operator.

5. Which of the following costs shall be considered prime cost but not conversion cost?
a. Acquisition price of the main material of the product.
b. Depreciation of the machinery used to manufacture the product.
c. Salary of the factory supervision, factory janitor and factory security guard.
d. Employee benefits of the factory machine operator.

6. Which of the following costs shall be considered conversion cost but not prime cost?
a. Acquisition price of the main material of the product.
b. Depreciation of the administrative building.
c. Salary of the factory supervisor, factory janitor and factory security guard.
d. Employee benefits of the factory machine operator.

7. Which of the following costs shall be considered as product cost instead of period cost?
a. Salary of the inventory accountant.
b. Freight out, warranty cost and sales commission.
c. Storage cost of work-in-process inventory
d. Costs of abnormal waste
 8. Which of the following costs shall be considered as period cost instead of product cost?
a. Finance cost on inventory loan and foreign exchange differences arising from purchases
b. Freight-in and insurance while in transit of the raw materials
c. Non-creditable import duties and irrecoverable value added tax
d. Cost of indirect material used and indirect labor incurred

9. Which of the following statements concerning spoilage in a job-order costing is correct?

a. The cost of abnormal spoilage is recorded as period cost or expense.
b. When normal spoilage occurs because of the specification of a particular job, cost of normal
loss shall be capitalized to that specific job reduced by the current disposal value/ net
realizable value of the spoiled units.
c. When normal spoilage is a characteristic of a given production cycle, the cost of normal loss is
not charged to a specific job but will be closed to manufacturing overhead control account.
d. All of the above.

10. Which of the following statements concerning rework costs in a job-order costing is correct?
a. If the normal rework cost is attributable to a specific job, it shall be capitalized to that
particular job.
b. It the normal rework cost is common to all jobs, it shall be debited to manufacturing overhead
control account.
c. If the rework cost is abnormal, it shall be recorded as period cost or expense.
d. All of the above.

11. Which of the following statements concerning scrap in a job-order costing is correct?
a. If the scrap is insignificant, the realizable value of scrap is recognized as revenue at the time it
is sold.
b. If the scrap is insignificant but traceable to the job that yielded the scrap, the net realizable
value of scrap shall be recorded as a deduction from cost of that specific product.
c. If the scrap is insignificant but common to all jobs, the net realizable value of scrap shall be
credited to manufacturing overhead control.
d. If the scrap is significant, the net realizable value shall be capitalized as inventory of scrap
with the credit going to specific job if traceable to a particular job or manufacturing overhead
control if common to all jobs.
e. All of the above.

Part II: Problem Solving

1. NBA Inc. is engaged in the business of manufacturing basket balls. The company employs actual
costing system. The company uses a single account for direct and indirect materials. The company
provided the following data for the year ended December 31, 2020:

Gross sales 9,500,000

Sales returns 500,000
Gross purchases 1,000,000
Purchase returns, allowance and discount 200,000
Freight in 400,000
Total costs of factory labor 1,000,000
Depreciation of factory assets 300,000
Expired insurance on factory assets 100,000
Utilities expense on factory 500,000
Total administrative expenses 2,000,000
Total marketing expenses 3,000,000

Inventories are as follows:

 January 1 December 31
Raw materials 100,000 300,000
Work in process ? 200,000
Finished goods 500,000 600,000
The following additional data are provided:
1. The net profit ratio of the company before income tax for the year ended December 31, 2020
was 10% of net sales.
2. The direct labor cost for the year was four times the cost of indirect labor.
3. The cost of indirect materials used was P100,000.

1. What is the total prime cost?

a. 1,700,000
b. 2,000,000
c. 1,800,000
d. 1,900,000

2. What is the total conversion cost?

a. 2,000,000
b. 1,900,000
c. 2,100,000
d. 2,200,000

3. What is the cost of goods manufactured?

a. 3,200,000
b. 3,100,000
c. 3,300,000
d. 3,000,000

4. What are the cost of goods sold and the cost of work in process on January 1, 2020,
respectively?
a. 3,100,000 and 500,000
b. 3,200,000 and 300,000
c. 3,000,000 and 400,000
d. 2,900,000 and 600,000

2. MLB Inc. is employing normal costing for its job orders. The overhead is applied using a
predetermined overhead rate. The following information relates to the MLB Inc. for the year ended
December 31, 2020:

Job No. 101 Job No. 102 Job No. 103

Job in Process, January 1, 2020:
Direct Materials 40,000 30,000 0
Labor 60,000 40,000 0
Factory Overhead 30,000 20,000 0
Costs added during 2020:
Materials 20,000 10,000 100,000
Labor 100,000 200,000 400,000
Factory Overhead ? ? ?

Additional information:
1. Actual overhead for the year 2020 amounted to P350,000.
2. Jobs No. 101 and 102 were completed and transferred to finished goods during year 2020.
3. Job No. 101 was sold during year 2020.
4. The gross profit rate is 20% based on cost.

1.What is the total manufacturing cost for 2020?

 a. 1,400,000
b. 1,180,000
c. 480,000
d. 1,200,000

2. What is the cost of goods manufactured for 2020?

a. 680,000
b. 700,000
c. 580,000
d. 780,000

3. What is the cost of goods sold for 2020?

a. 1,180,000
b. 300,000
c. 700,000
d. 1,200,000

4. What is the gross profit for 2020?

a. 236,000
b. 60,000
c. 140,000
d. 240,000

5. What are the cost of work in process on December 31, 2020 and the cost of finished goods on
December 31, 2020, respectively?
a. 800,000 and 500,000
b. 700,000 and 400,000
c. 600,000 and 300,000
d. 900,000 and 200,000

3. NFL Inc. produces sport’s equipment made to customer’s specifications. The following data pertain to
Job 101.
6-month ending June 30, 2020 6-month ending 12/31/2020
Materials – Dept. 1 P100,000 P200,000
Direct labor rate – Dept. 1 P10/hour P15/hour
Labor hours used – Dept. 1 4,000 hours 2,000 hours
Direct labor rate – Dept. 2 P20/hour P30
Labor hours used – Dept. 2 1,000 hours 3,000 hours
Machine hours used – Dept. 2 2,000 hours 1,000 hours

Additional data:
a. NFL Inc. determined that the amount of operating expenses is 10% of full production cost of
job.
b. The company has provided a net profit mark up of 20% based on sales.
c. Applied factory overhead:
Department 1 P5.00 per direct labor hour
Department 2 P2.00 per machine hour

What is the net profit if Job 101 was completed and sold in year 2020?

a. 141,900
b. 193,500
c. 129,000
d. 113,520

4. UFC Inc. applies factory overhead as follows:

 Department Per Machine Hour
Fabricating P10
Spreading P20
Packaging P30

Actual machine hours are:

Fabricating – 2,000 hours
Spreading – 1,500 hours
Packaging – 3,000 hours

The following additional data are provided:

a. The actual factory overhead expense for the period is P100,000.
b. The ending balances of the inventories and cost of goods sold after the application of overhead
are as follows:
Raw Materials 200,000
Work in Process 100,000
Finished Goods 400,000
Cost of goods sold 500,000
c. The over/(under) applied overhead during the period is considered material if at least 30% of
actual factory overhead,

What is the adjusted cost of goods sold after closing the under/over application of factory
overhead?

a. 460,000
b. 480,000
c. 540,000
d. 483,333

5. MMA Inc. manufactures furniture sets for export and uses the job order costing system in accounting
for its costs. The following information is obtained from the accounting books and records for the year
ended December 31, 2020:

 The work in process on January 1 was 20% less than the work in process on December 31.
 The total manufacturing costs added during 2020 was P1,800,000 based on actual direct materials
and direct labor but with manufacturing overhead applied on actual direct labor pesos.
 The manufacturing overhead applied to process was 72% of the direct labor pesos, and it was
equal to 25% of the total manufacturing costs.
 The cost of goods manufactured, also based on actual direct materials, actual direct labor and
applied manufacturing overhead, was P1,700,000.

1. What is the cost of direct materials used?

a. 1,026,000
b. 1,350,000
c. 725,000
d. 1,150,000

2. What is the work in process on December 31, 2020?

a. 400,000
b. 600,000
c. 500,000
d. 300,000

6. NIKE Inc. has completed the Job 101, containing 1,100 shoes, during 2020 at the following unit costs:
 Direct materials 2,000
Direct labor 1,000
Factory overhead (including an allowance of P300 for spoiled work) 1,300

Final inspection of Job 101 disclosed 100 spoiled shoes which were sold to a department for
P200,000.

1. What is the unit cost of the good shoes produced on Job 101 if spoilage loss is charged to all
production?
a. 4,000
b. 4,100
c. 4,400
d. 4,300

2. What is the unit cost of the good shoes produced on Job 101 if spoilage loss is charged to
specific Job 101?
a. 4,300
b. 4,000
c. 4,500
d. 4,200

7. For the year ended December 31, 2020, UA Inc. incurred the following costs on Job Order 201 for
manufacturing of 500 units:

Original cost accumulation:

Direct materials 500,000
Direct labor 400,000
Factory overhead 100,000

Direct costs of reworking 100 units:

Direct materials 100,000
Direct labor 200,000

1. What is the cost per unit of Job Order 201 if the rework costs were attributable to the
exacting specification of Job Order 201?
a. 2,600
b. 2,500
c. 2,700
d. 2,200

2. What is the cost per unit of Job Order 201 if the rework costs were attributable to internal
failure?
a. 2,500
b. 2,400
c. 2,000
d. 2,300

8. Adidas Inc. is exploring ways to allocate the cost of service departments such as Quality Control and
Maintenance to the production departments such as Machining and Assembly. The controller of the
company has provided the following information:
 Quality
Maintenance Machining Assembly Total
Control
Budgeted
overhead costs
P350,000 P200,000 P400,000 P300,000 P1,250,000
before
allocation
Budgeted
- - 50,000 hrs - 50,000 hrs
machine hours
Budgeted
direct labor - - - 25,000 hrs 25,000 hrs
hours
Budgeted
hours of
- 7,000 hrs 21,000 hrs 7,000 hrs 35,000 hrs
service of
quality control
Budgeted
hours of
10,000 hrs - 18,000 hrs 12,000 hrs 40,000 hrs
service of
maintenance

1. Under direct method of allocating service department costs, what are the total service costs
allocated to the machining and assembly departments, respectively?

a. 382,500 and 167,500

b. 300,000 and 130,000
c. 412,500 and 137,500
d. 330,000 and 220,000

2. Under the step-down method of allocating service department costs from quality control to
maintenance, what are the total service costs allocated to the machining and assembly
departments, respectively?

a. 372,000 and 178,000

b. 412,500 and 137,500
c. 330,000 and 220,000
d. 405,000 and 145,000

3. Under the reciprocal method of allocating service department costs, what are the total
amount of quality control costs and total amount of maintenance costs, respectively, to be
allocated to the other departments?

a. 421,053 and 284,211

b. 453,201 and 290,640
c. 410,250 and 282,050
d. 435,800 and 287,160

Standard Costing

Part I: Theory of Accounts

1. Under Standard Costing System, direct material price variance shall be appropriately recorded or
computed
a. At the time of purchase
b. At the time of usage from raw materials to work in process
c. At the time of disposal of finished goods
d. At the time of conversion from work in process to finished goods

2. At the time of recording of material price variance, the material price variance account is credited.
Which of the following is correct?
a. The raw materials actually used are higher than the standard raw materials.
b. The actual price of raw materials is lower than the standard price of raw materials.
 c. The raw materials actually used are lower than the standard raw materials.
d. The actual price of raw materials is higher than the standard price of raw materials.

3. If the raw material actual used are higher than the standard raw materials, the journal entry to
record the variance will include
a. Debit to material usage variance
b. Credit to material usage variance
c. Debit to material price variance
d. Credit to material price variance

4. At the time of recording of direct labor efficiency variance, the said variance account is debited.
Which of the following is correct?
a. The actual direct labor hours are higher than the standard direct labor hours.
b. The actual direct labor hours are lower than the standard direct labor hours.
c. The actual direct labor rate is higher than the standard direct labor rate.
d. The actual direct labor rate is lower than the standard direct labor rate.

5. If the actual direct labor rate is lower than the standard direct labor rate, the journal entry to record
the variance will include
a. Debit to direct labor efficiency variance
b. Credit to direct labor efficiency variance
c. Debit to direct labor rate variance
d. Credit to direct labor rate variance

6. Which of the following statements concerning the responsibility for direct material and direct
labor variances is incorrect?
a. As a general rule, material price variance is the responsibility of purchasing manager.
b. As a general rule, material usage variance is the responsibility of production manager.
c. As a general rule, direct labor rate variance is the responsibility of purchasing manager.
d. As a general rule, direct labor efficiency variance is the responsibility of production manager.

7. If the company reports favorable material price variance and unfavorable material usage
variance, what is the most probable reason?
a. Acquisition of inexpensive/cheap but low-quality materials.
b. Acquisition of expensive but high-quality materials.
c. Hiring of experienced but highly paid laborers.
d. Hiring of inexperienced but lowly paid laborers.

8. If the company reports unfavorable material price variance and favorable material usage
variance, what is the most probable reason?
a. Acquisition of inexpensive/cheap but low-quality materials.
b. Acquisition of expensive but high-quality materials.
c. Hiring of experienced but highly paid laborers.
d. Hiring of inexperienced but lowly paid laborers.

9. If the company reports favorable direct labor rate variance and unfavorable direct labor
efficiency variance, what is the most probable reason?
a. Acquisition of inexpensive/cheap but low-quality materials.
b. Acquisition of expensive but high-quality materials.
c. Hiring of experienced but highly paid laborers.
d. Hiring of inexperienced but lowly paid laborers.

10. If the company reports unfavorable direct labor rate variance and favorable direct labor
efficiency variance, what is the most probable reason?
a. Acquisition of inexpensive/cheap but low-quality materials.
b. Acquisition of expensive but high-quality materials.
c. Hiring of experienced but highly paid laborers.
d. Hiring of inexperienced but lowly paid laborers.

11. Which of the following statements concerning the responsibility for factory overhead variances is
incorrect?
a. Factory overhead efficiency variance is the responsibility of production manager.
 b. Factory overhead variable spending variance is the responsibility of purchasing manager for
indirect materials or human resource manager for indirect labor.
c. Factory overhead fixed spending variance is the responsibility of purchasing manager.
d. Factory overhead volume variance is the responsibility of both production manager and
purchasing manager.

12. Which of the following factory overhead variances is pure variable?

a. Spending variance
b. Controllable variance
c. Efficiency variance
d. Volume variance

13. Which of the following factory overhead variances is pure fixed?

a. Spending variance
b. Controllable variance
c. Efficiency variance
d. Volume variance

14. In the computation of standard fixed factory overhead cost per labor hour, the total budgeted total
fixed factory overhead shall be divided using
a. Actual direct labor hours
b. Standard direct labor hours based on actual units produced
c. Normal capacity of production in labor hours
d. Actual direct labor hours last year

Part II: Problems

1. HQ Inc. uses standard costing for the accounting of its product. The budget officer provided the
following standard data imposed by the top-level management concerning the direct materials:
 Standard direct material is 3 per unit of the product.
 Standard price is P5 per unit of direct material

During the year, the company acquired on account 1,000 units of direct material at a total cost of
P4,000. It also manufactured 150 products using 750 direct materials.
The journal entry to record the material purchase variance will include
a. Debit to raw materials at P4,000
b. Credit to accounts payable at P3,750
c. Debit to material price variance at P750
d. Credit to material price variance at P1,000

2. Using the same data in number 1, the journal entry to record the material usage variance will include
a. Debit to work in process at P1,800
b. Credit to raw materials at P3,000
c. Debit to material usage variance at P1,500
d. Credit to material usage variance at P1,200

3. ISO Inc. is employing standard costing for its product. For the year ended December 31, 2020, it
provided the following data:
 During the year, the company acquired 1,500 units of direct materials at a total cost of P15,000.
 The journal entry to record the material variance during the year includes a credit to material usage
variance in the amount of P700.
 The standard direct material is 5 per product.
 The company manufactured 200 units of product using 900 direct materials.

The journal entry to record the material price variance will include a
a. Debit to material price variance of P4,500
b. Debit to material price variance of P2,700
c. Credit to material price variance of P10,500
d. Credit to material price variance of P6,300

4. Q-Prod Inc. has provided the following standard direct labor cost for its product:
 Standard direct labor is 2 hours per unit of the product.
  Standard rate is P15 per direct labor hours.

During the year, the company produced 1,000 units of the product through 1,800 direct labor hours at
a total labor cost of P36,000.
The journal entry to record the labor variances will include will include
a. Debit to direct labor rate variance of P9,000.
b. Debit to to direct labor efficiency variance of P3,000
c. Credit to salaries payable of P30,000
d. Debit to work in process of P36,000

5. LQ-Man Inc. has debited direct labor efficiency variance in the amount of P3,000 in the journal entry
to record the variance. During the year, it manufactured 3,200 units of product using 6,600 direct labor
hours at a total cost of P79,200. Each unit of product requires 2 standard direct labor hours.
What is the debit/credit to direct labor rate variance at the time of recording?
a. P19,800 credit
b. P6,400 debit
c. P16,800 credit
d. P3,000 debit

Joint and By-Product Costing

Part I: Theory of Accounts

1. This method of allocating joint manufacturing costs to main/joint products allocates joint costs on
the basis of estimated sales value at split off of a given joint product relative to the sales value at
split off of total joint production?
f. Market value at split-off approach
g. Hypothetical market value or approximated net realizable value approach
h. Average unit or production output method
i. Weighted average method

12. For products that need further processing, this method is more suitable because it takes into
account, the additional costs needed to further process and sell the joint products. Under this
method of allocating manufacturing costs to man products, joint cost is allocated to products using
the following the net realizable value ratio of the products.
a. Market value at split-off approach
b. Hypothetical market value or approximated net realizable value approach
c. Average unit or production output method
d. Weighted average method

13. This method of allocating joint manufacturing costs to main/joint products allocates joint costs
based on number of units or physical quantity such as weight, volume or length of each product
relative to total production.
a. Market value at split-off approach
b. Hypothetical market value or approximated net realizable value approach
c. Average unit or production output method
d. Weighted average method

14. This method of allocating joint manufacturing costs to main products allocates joint cost based
using the weight factors to include such diverse elements as amount of material used, difficulty to
manufacture, time consumed, difference in type of labor used, and size of unit for determination of
cost allocation ratio.
a. Market value at split-off approach
b. Hypothetical market value or approximated net realizable value approach
c. Average unit or production output method
d. Weighted average method

15. If the net realizable value of the by-product of a joint production process is significant, how shall it
be accounted for?
 a. The net realizable value of the by-product shall be recorded as deduction from the total joint
manufacturing cost thereby reducing the cost of the main products also known as replacement
cost method.
b. The net realizable value of the by-product shall be recorded as deduction from the net sales of
the main product.
c. The net realizable value of the by-product shall be recorded as deduction from the cost of sales
of the main product.
d. The net realizable value of the by-product shall be recorded as other income.

Part II: Problem Solving

16. MIX Inc. is conducting a joint process which results to three products. The following production data
were provided by MIX Inc. for the current period:

Product Name Units Produced Selling price per unit at split off point
Ace 10,000 P40
Bat 15,000 P20
Can 25,000 P12

Additional data for the period were provided:

 All the ace items were sold for a gross profit of P100,000.
 The joint costs were allocated using physical method.

1. What is the gross profit/(loss) if all the Bat items are sold in current year?
a. 200,000
b. (150,000)
c. (100,000)
d. 50,000

2. Assuming the joint costs are fixed, what is the joint cost allocated to Can Items using the relative
sales value method?
a. 250,000
b. 450,000
c. 750,000
d. 300,000

17. COMBI Inc. manufactures three joint products. The following production data were provided by
COMBI Inc. for the current period:

Product Name Units Produced Additional Processing Final Selling Price

Cost after Split Off
Xen 1,000 P20,000 P50
Yen 2,000 10,000 10
Zen 3,000 30,000 30

Joint product costs for the current period were as follows:

Raw materials P10,000
Direct labor 15,000
Factory overhead 25,000

The company uses the net realizable value method for allocating joint costs.

1. What is the Gross profit/(loss) on the sale of all Xen products?

a. 30,000
b. 21,667
c. 15,000
d. 5,000

2. What is the total gross profit/(loss) on the sale of all the joint products?
a. 40,000
 b. 60,000
c. 50,000
d. 30,000

18. BLEND Inc. manufactures three joint products and allocates joint costs at its relative sales value at
split-off point. The following joint product costs were incurred for the current period:
Raw materials 180,000
Direct labor 120,000
Factory overhead 200,000
The following production data were provided by BLEND Inc. for the current period:

Product Name Units Produced Selling price Additional Final Selling

at split off point Processing Cost Price
Uno 10,000 P20.00 P50,000 P24
Dos 20,000 15.00 60,000 18
Tres 40,000 12.50 100,000 16

What is the total gross profit/(loss) for the current period if BLEND Inc. will correctly process further
the proper items?
a. 540,000
b. 530,000
c. 500,000
d. 510,000

19. CONSO Inc. manufactures joint products ALT and TAB, and a by-product DEL. Costs are assigned to
the joint products by the net realizable value or final market value method which considers further
processing costs in subsequent operations. It is the policy of CONSO Inc. to account for its by-product
by market value or reversal cost method or deduction of net realizable value of by-product from the
joint manufacturing costs of main products. The total manufacturing costs for 100,000 units were
P1,520,000 during the year. Production and costs data follow:
ALT TAB DEL
Units produced 60,000 30,000 10,000
Sales price per unit P70 P25 P10
Further processing cost per unit 20 5 3
Selling and admin expense per unit 5

1. What is the value of DEL to be deducted from the joint manufacturing costs?
a. P100,000
b. P70,000
c. P50,000
d. P20,000

2. What is the gross profit of ALT for the year?

a. 1,500,000
b. 1,600,000
c. 1,400,000
d. 1,750,000

3. What is the gross profit of TAB for the year?

a. 600,000
b. 500,000
c. 700,000
d. 350,000

20. MERGE Inc. manufactures ZEN product from a process that yields a by-product called YAN. The by-
product requires additional processing cost of P30,000. The by-product will require selling and
administrative expenses totaling P20,000. It is MERGE’s accounting policy to charge the joint costs to
 the main product only. Information concerning a batch produced during the year ended December 31,
2016 follows:

Product Units Produced Market Value at Split Off Units Sold

ZEN 100,000 P50 60,000
YAN 8,000 P10 8,000

The joint costs incurred up to split-off point are:

Direct materials P2,000,000
Direct labor 800,000
Factory overhead 200,000

The selling and administrative expense of MERGE Inc. for the year ended December 31,2016 is
P1,000,000 exclusive of that for the by-product.

1. What is the gross profit for the year if the net revenue from by-product is presented as other
income?
a. 1,200,000
b. 1,230,000
c. 1,218,000
d. 1,118,000

2. What is the gross profit for the year if the net revenue from by-product is presented as additional
sales revenue?
a. 1,230,000
b. 1,200,000
c. 1,218,000
d. 1,118,000

3. What is the net income for the year if the net revenue from by-product is presented as deduction
from the cost of goods sold?
a. 200,000
b. 218,000
c. 230,000
d. 118,000

4. What is the net income for the year if the net revenue from by-product is presented as deduction
from the total manufacturing cost of the main product?
a. 218,000
b. 200,000
c. 230,000
d. 118,000

Just-in-time and Backflush Costing

Part I: Theory of Accounts

21. Which of the following costs shall be considered as period cost instead of product cost?
a. Finance cost on inventory loan and foreign exchange differences arising from purchases
b. Freight-in and insurance while in transit of the raw materials
c. Non-creditable import duties and irrecoverable value added tax
d. Cost of indirect material used and indirect labor incurred

22. It is an inventory strategy a company employs to increase efficiency and decrease waste by
receiving and producing goods as they are needed in the production process, thereby reducing
inventory costs.
a. Just In Time Inventory System
 b. Min-max inventory system
c. Pareto/80-20 inventory rule
d. ABC inventory system

23. It is a product costing system generally used in just-in-time inventory environment. This costing
system delays the costing process until the production of goods is completed by eliminating the
detailed tracking of cost throughout the production system and preparing journal entries only at
trigger points.
a. Backflush costing
b. Standard costing
c. Normal costing
d. Traditional costing

24. Which of the following statements of service department costs allocation pertains to direct
method?
a. This method allocates each service department’s total costs directly to the production
departments, and ignores the fact that service departments may also provide services to other
service departments.
b. This method is also called sequential method that allocates the costs of some service
departments to other service departments, but once a service department’s costs have been
allocated, no subsequent costs are allocated back to it.
c. This method is the most accurate of the three methods for allocating service department costs,
because it recognizes reciprocal services among service departments. It is also the most
complicated method, because it requires solving a set of simultaneous linear equations.
d. None of the above.

25. Under Just-in-Time Inventory System and Backflush Costing, what costing method is ideally
employed?
a. Normal costing
b. Actual costing
c. Standard costing
d. Budgeted costing

Part II: Problem Solving

26. NESTLE Inc. is employing a sophisticated just-in-time manufacturing system. The company uses
backflush costing for recording its production. The following transactions occurred for the year ended
December 31, 2016:

a. Purchased P170,000 of raw materials on account.

b. All materials purchased were requisitioned for production.
c. Incurred direct labor costs of P80,000.
d. Actual factory overhead costs amounted to P122,000.
e. Applied conversion costs totaled P202,000 including direct labor cost of P80,000.
f. All telephones were completed and sold.

What is the cost of goods sold for the year ended December 31, 2016?
a. 372,000
b. 202,000
c. 250,000
d. 292,000

27. HONDA Inc. is using Just-in-Time Production System and Backflush Cost Accounting System for the
year ended December 31, 2016. The following information was provided for the year 2016:

a. Raw materials purchased for year 2016 totaled P1,000,000.

b. Direct labor for the year 2016 totaled P500,000.
 c. Actual overhead for the year 2016 totaled P300,000 and the standard overhead rate is 50% of
direct labor cost.
d. The production report for year 2016 showed that the Finished Goods Inventory at December
31 was P200,000 consisting of:
Direct Materials 110,000
Direct Labor 60,000
Factory Overhead 30,000

What is the Cost of Goods Sold for the year ended December 31, 2016?
a. 1,600,000
b. 1,550,000
c. 1,800,000
d. 1,750,000

28. SMC Inc. employs Just-in-Time and Backflush Costing Systems for the production of goods for the
year ended December 31, 2016. The following transactions summarize the major steps in SMC’s
production during the year of 2016:

a. Raw materials received from suppliers amounted to P4,000.

b. Direct labor costs of P10,400 and overhead costs of P7,800 were incurred and applied,
respectively, during the year of 2016.
c. The cost of work-in-process at December 31, 2016 was P3,600. This cost was determined
through the production report and is composed of the following elements of cost:
Direct materials 1,500
Direct labor 1,200
Overhead 900
d. In addition, the finished goods inventory at December 31, 2016 was P6,500 consisting of:
Direct materials 1,500
Direct labor 2,850
Overhead 2,150

1. What is the amount of direct materials backflushed from raw and in process account to finished
goods?
a. 1,500
b. 4,000
c. 2,500
d. 1,000

2. What is the amount of direct materials backflushed from finished goods to cost of goods sold?
a. 1,500
b. 4,000
c. 1,000
d. 2,500

3. What is the amount of cost of goods sold for the year ended December 31, 2016?
a. 22,200
b. 18,600
c. 12,100
d. 15,700

Process Costing
Part I: Theory of Accounts

1. When shall the process costing be used instead of job order costing?
a. When the production process performs standardized or uniform procedures.
 b. When the company performs a very short production runs that is based on customer specifications.
c. When the company intends to use it for billing customers.
d. When the company produces high-value and heterogeneous products.

2. What is the reason for the difference between the allocated cost computed using FIFO-process costing
and average-process costing?
a. Cost per unit under average costing is computed by dividing the sum of cost of work-in-process
inventory and total manufacturing costs by the equivalent unit of production while cost per unit
under FIFO costing is computed by dividing total manufacturing cost by equivalent unit of
production.
b. Average costing assumes that all units are started during the period while FIFO costing considers
the percentage of completion of the beginning inventory.
c. Computation of units completed under average pertains to costs of units completed only while
computation of units completed under FIFO considers costs of beginning inventory, costs assigned
to equivalent unit of production added to beginning inventory and costs of units started and
completed.
d. All of the above.

3. If the spoilage in process costing is considered to be continuous, which of the following statements is
correct?
a. The cost assigned to abnormal loss shall be treated as period cost or expense.
b. The cost assigned to normal loss shall be allocated to units completed, work-in-process ending
inventory and abnormal loss.
c. The abnormal loss shall be given 100% equivalent unit of production while normal loss shall not
be given an equivalent unit of production to automatically allocate the cost of normal loss to units
completed, work-in-process ending inventory and abnormal loss by increasing the cost per unit.
d. All of the above.

4. If the spoilage in process costing is considered discrete because there is inspection point, which of the
following statements is correct?
a. The cost assigned to abnormal loss shall be treated as period cost or expense.
b. The cost assigned to normal loss shall be allocated to either (1) units completed only or (2)
prorated to units completed and work-in-process ending inventory based on equivalent units of
production, depending on where those normal losses were discovered.
c. The normal or abnormal loss shall be given or not given equivalent unit of production depending
on the stage of inspection point and stage of adding the cost component.
d. All of the above

5. When will the average process costing method produce the same cost of goods manufactured as the
first in first out process costing method?
a. When materials are added 100% at the end of the process.
b. When materials are added 100% at the beginning of the process.
c. When the beginning work in process inventory and ending work in process inventory are equal.
d. When there is no beginning work in process inventory.

Part II: Problem Solving

Problem 1. RJ Inc. is a company manufacturing a product known as “COLOREE” which undergoes a
uniform process prior to its completion. RJ Inc. employs weighted average process costing system for this
product. For the year ended December 31, 2016, the following data are provided by the company:
a. The work-in-process inventory on January 1, 2016 is 10,000 units which are 80% incomplete as
regards to conversion cost while the work-in-process inventory on December 31, 2016 is 60%
complete as regards to conversion cost.
b. The total units started during the year amounted to 90,000 units while the total units manufactured
during the year amounted to 70,000 units.
c. There is no spoilage during the period.
d. It is the company’s policy to apply direct labor and factory overhead evenly throughout the period
while 2/5 of direct materials are added at the start of the process while the remaining direct
materials are added at the end of the process.
e. The cost of January 1, 2016 work-in-process inventory consists of P100,000-direct material,
P200,000-direct labor and P300,000-factory overhead.
 f. The total manufacturing cost for the year consisted of P2M-direct material, P5M-direct labor and
P3M-factory head.
What is the cost per equivalent unit of production of Direct Material and Conversion Cost, respectively?
a. 25.6 and 96.59
b. 24.39 and 90.91
c. 21 and 85
d. 23.86 and 103.66

Problem 2. GANDA Inc. employs First-In-First-Out process costing system in accounting for its product.
For the year ended, December 31, 2016, the following data are provided:
a. The 30,000 work-in-process inventory on January 1, 2016 is 40% complete as regards to
conversion cost while the 20,000 work-in-process inventory on December 31, 2016 is 90%
incomplete as regards to conversion cost.
b. The total units started during the year amounted to 60,000 units. There is no spoilage during the
period.
c. It is the company’s policy to apply direct labor and factory overhead uniformly throughout the
period while ¾ of direct materials are added at the start of the process while the remaining direct
materials are added at the end of the process.
d. The cost of January 1, 2016 work-in-process inventory consists of 200,000-direct material,
300,000-direct labor and 500,000-factory overhead.
e. The total manufacturing cost for the year consisted of P1M-direct material, P3M-direct labor and
P4M-factory overhead.
What is the cost per equivalent unit of production of Direct Material and Conversion Cost, respectively?
a. 19.2 and 130
b. 16 and 116.67
c. 14.81 and 89.74
d. 11.76 and 100

Problem 3. Ronda Company employs weighted average process costing system concerning its sole
product. The following data were provided by the cost accountant for the year ended December 31, 2016:

a. There are 15,000 units on January 1, 2016 with following costs: 500,000-direct material,
1,200,000-direct labor and 300,000 factory overhead. The beginning inventory is 30% complete as
to conversion cost.
b. There are 35,000 units started during 2016 and the total manufacturing cost added during 2016
consists of P4M-direct material, P3M-direct labor and P1M-factory overhead.
c. There are 20,000 units on December 31, 2016 which are 20% incomplete as to conversion cost.
d. There is no spoilage during the year.
e. It is the company’s policy to add direct labor and factory overhead evenly throughout the period
while all direct materials are added at the beginning of the process.

1. What is the cost assigned to units completed or the cost of goods manufactured for the year ended
December 31, 2016?
a. 7,151,200
b. 6,812,800
c. 6,287,100
d. 6,534,900

2. What is the cost assigned to December 31, 2016 work-in-process inventory?

a. 2,848,800
b. 3,187,200
c. 3,713,120
d. 3,465,100
Problem 4. Cena company employs FIFO process costing system concerning its only product which
undergoes production in assembly department and finishing department. The following data for the year
ended December 31, 2016 are provided:
ASSEMBLY DEPARTMENT
Units Cost
January 1, 2016 100,000 units – 40% completed as to Cost of Direct material – P3M
conversion cost Cost of Direct labor – P5M
Cost of Factory Overhead – P2M
December 31, 2016 150,000 units – 80% completed as to ?
conversion cost
Units started during the year 400,000 units DM cost added during 2016 – P12M
DL cost added during 2016 – P15M
FOH cost added during 2016 – P13M
FINISHING DEPARTMENT
Units Cost
January 1, 2016 50,000 units – 70% incomplete Cost of Transferred in – P10M
conversion cost Cost of Direct material – P6M
Cost of Direct labor – P1M
Cost of Factory Overhead – P3M
December 31, 2016 30,000 units – 10% incomplete as to ?
conversion cost
Units started during the year DM cost added during 2016 – P30M
DL cost added during 2016 – P40M
FOH cost added during 2016 – P10M

Additional information for the year:

a. It is the company’s policy to add conversion cost evenly throughout the period in the two
departments.
b. It is the company’s policy to add all direct materials in the assembly department at the start of the
process while all direct materials in the finishing department are added at the end of the process.
c. There is no spoilage in both departments.

1. In the assembly department, what is the cost of goods manufactured or cost assigned to units
completed for the year ended December 31, 2016?

a. 37,687,200 b. 38,763,400 c. 36,451,200 d. 35,523,800

2. In the assembly department, what is the cost assigned to December 31, 2016 work-in-process
inventory?

a. 12,314,400 b. 11,236,600 c. 13,548,800 d. 14,476,200

3. In the finishing department, what is the cost of goods manufactured or cost assigned to units
completed for the year ended December 31, 2016?

a. 130,923,150 b. 129,235,750 c. 131,285,400 d. 128,452,100

4. In the finishing department, what is the cost assigned to December 31, 2016 work-in-process
inventory?

a. 6,764,430 b. 8,541,450 c. 6,401,800 d. 9,235,100