JOB ORDER COSTING SEATWORK

TRUE OR FALSE.

1. Manufacturing overhead is an indirect cost with respect to units of product.

2. Depreciation on office equipment would not be included in the cost of goods manufactured.
3. Rent of factory building used in the production process would be classified as a period cost and
as a fixed cost.
4. Period costs are found only in manufacturing companies, not in merchandising companies.
5. If the finished goods inventory increases between the beginning and the end of a period, then
the cost of goods manufactures is smaller than the cost of goods sold.
6. The cost of goods manufactures is calculated by adding the amount of work in process at the
end of the year to the cost of raw materials used, direct labor worked, and manufacturing
overhead incurred for the year and then subtracting work in process at the beginning of the
year.
7. Variable cost per unit is affected by changes in activity.
8. The amount that a manufacturing company could earn by renting unused portions of its
warehouse is an example of an opportunity cost.
9. Internal failure costs result from identification of defects during the appraisal process. Such
costs may include scrap, rejected products, rework and downtime.
10. A cost is either direct or indirect. The classification will not change if the cost object changes.

MULTIPLE CHOICE THEORIES.

1. The cost of lubricants used to grease a production machine in a manufacturing company is an

example of a(n):
a. Period cost
b. Direct material cost
c. Indirect material cost
d. None of the above

2. Indirect labor is a part of:

a. Prime cost
b. Conversion cost
c. Period cost
d. Nonmanufacturing cost

3. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who
have undergone orthopedic surgery. The costs of drugs administered by the nursing station to
patients would be classified as:
a. Direct costs of the patient
b. Indirect costs of the patient
c. Overhead costs of the nursing station
d. Period costs of the hospital.

4. Fixed costs expressed on a per unit basis:

a. Will increase with increases in activity
b. Will decrease with increases in activity
c. Are not affected by activity
d. Should be ignored in making decisions since they cannot change
5. A cost incurred in the past that is not relevant to any current decision is classified as a(n):
a. Period cost
b. Opportunity cost
c. Sunk cost
d. Differential cost

6. Which of the following would be classified as an internal failure cost on a quality cost report?
a. Quality improvement projects
b. Supervision of testing and inspection activities
c. Debugging software errors
d. Warranty repairs and replacements

7. Inspection of products would be classified as a(n):

a. Prevention costs
b. Appraisal cost
c. Internal failure cost
d. External failure cost

8. Statement 1: Process costing is used in those situations where many different products or services
are produced each period to customer specifications.

Statement 2: The basic approach in job order costing is to accumulate costs in a particular operation
or department for an entire period (month, quarter or year) and then to divide this total by the
number of units produce during the period.

a. Statement 1 is False, Statement 2 is True

b. Statement 1 is True, Statement 2 is False
c. Statement 1 and 2 are True
d. Statement 1 and 2 are False

9. Statement 1: If a company uses predetermined overhead rates, actual manufacturing overhead

costs of a period will be recorded in the manufacturing overhead account, but they will not be
recorded on the job cost sheets for the period.

Statement 2: The formula for computing the predetermined overhead rate is estimated total units in
base divided by estimated total manufacturing costs.

a. Statement 1 is False, Statement 2 is True

b. Statement 1 is True, Statement 2 is False
c. Statement 1 and 2 are True
d. Statement 1 and 2 are False

10. On the schedule of cost of goods manufactured, the final cost of goods manufactures figure
represents:
a. The amount of cost charged to work in process during the period.
b. The amount of cost transferred from finished goods to cost of goods sold during the period.
c. The amount of cost placed into production during the period,
d. The amount of cost of goods completed during the current year whether they are started before
or during the current year.
PROBLEMS.

1. The following information was taken from MaCPAKo Company’s accounting records for the year
December 31, 2018:

Increase in raw materials inventory P15,000

Decrease in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor cost 200,000
Factory overhead control 260,000
Freight-in 45,000

There was no work in process inventory at the beginning or end of the year. MaCPAKo’s 2018 cost of
goods sold id if FOH is applied at 140% of labor costs:
a. P950,000
b. P965,000
c. P975,000
d. P995,000

2. WayLisod Company has underapplied factory overhead of P45,000 for the year ended December 31,
2018. Before disposition of the underapplied overhead, selected December 31, 2018 balances from
WayLisod’s accounting records are as follows:

Sales P1,200,000
Cost of goods sold 720,000

Inventories:
Direct materials 36,000
Work in process 54,000
Finished goods 90,000

Under WayLisod’s cost accounting system, over- or underapplied overhead is allocated to

appropriate inventories and cost of goods sold based on year-end balances. In its 2018 income
statement, WayLisod should report cost of goods sold of
a. P682,500
b. P684,000
c. P756,000
d. P757,500

3. The accounting records for 2018 SayonRa Manufacturing Company showed the following
information:

Increase in raw materials inventory P45,000

Decrease in Finished Goods inventory 150,000
Increase in Work-in-Process inventory 60,000
Raw materials purchased 1,290,000
Direct labor payroll 600,000
Factory overhead 900,000
Freight out 135,000

The cost of raw materials used for the period amounted to:
a. P1,245,000
b. P1,290,000
c. P1,335,000
d. P1,380,000
4. The following information pertains to KalmaLang Co. manufacturing process:

2018
March 1 March 31
Inventories
Direct Materials P36,000 P30,000
Work in process 18,000 12,000
Finished Goods 54,000 72,000
Additional information for the month of March
Direct materials purchased P84,000
Direct labor payroll P60,000
Direct labor rate per hour P7.50
Factory overhead rate per direct labor hour P10.00

How much must be the prime cost, conversion cost and cost of good manufactures for the month?

Conversion Cost of goods

Prime Cost Cost Manufactured
a. P90,000 P60,000 P236,000
b. P150,000 P140,000 P296,000
c. P144,000 P170,000 P230,000
d. P150,000 P140,000 P236,000

For numbers 5 and 6, kindly refer to the following problem:

AmpoLang Inc. uses a job order costing system and the following information is available from the
records. The company has 3 jobs in process: Job 501, 502 and 503.

Raw materials used P120,000

Direct labor per hour 8.50
Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30%, 25% and 25%, the balance of
the requisitions were considered indirect. Direct labor hours per job are 2,500, 3,100, 4,200,
respectively. Indirect labor is P33,000. Other actual overhead costs totaled P36,000.

5. What is the total amount of factory overhead?

a. P36,000
b. P69,000
c. P93,000
d. P99,960

6. If Job 503 is completed and transferred, how much is the total cost transferred to Finished goods
inventory?
a. P96,700
b. P99,020
c. P108,540
d. P139,540

7. Job No. 41 (consisting of 5,000 units) was started in September 2016 and it is special in nature
because of its strict specifications. Factory overhead is charged at P0.80 per unit and includes P0.05
provision for defective work. The prime cost incurred in September are: Direct materials, P9,000 and
direct labor, P4,800. Upon inspection, 80 units were found with imperfections and required the
following reprocessing costs: direct materials, P1,500 and direct labor P800.
 The unit cost of Job no. 41 upon completion is:
a. P4.10
b. P4.05
c. P3.98
d. P3.62

8. ThereCanBeMiracle Company provides you with the following information:

2018
January 1 January 31
Inventories
Direct Materials ? P50,000
Work in process 80,000 95,000
Finished Goods 60,000 78,000
Additional information for the month of January
Purchase of materials P46,000
Factory overhead (75%of direct labor costs) P63,000
Selling and administrative expenses (12.5% of sales) P25,000
Factory overhead control P62,800
Net income for January P25,200
Indirect materials used P1,000

Compute for materials inventory for Jan. 1, cost of goods manufactured and cost of goods sold
(normal) for the month of January 2018.

Materials Cost of goods Cost of goods

inventory, Jan. 1 Manufactured sold
a. P40,000 P168,200 P150,200
b. P41,000 P168,000 P150,000
c. P40,200 P168,000 P150,000
d. P40,800 P167,800 P149,800

9. YouDoNoteMeKazzie Company budgeted total variable overhead costs at P180,000 for the current
period. In addition, the budgeted costs for factory rent at P215,000, cost for depreciation on office
equipment at P12,000, costs for office rent at P92,000 and costs for depreciation of factory
equipment at P38,000. All these costs were based upon an estimated machine hours of 80,000.
Actual factory overhead for the period amounted to P387,875 and machine hours used totaled
74,000 hours.

How much was the over or under-applied factory overhead for the period?
a. P12,650 over-applied
b. P12,650 under-applied
c. P108,850 over-applied
d. P108,850 under-applied

10. ImALiarisMyPeyk Company uses job order costing. Factory overhead is applied to production at a
budgeted rate of 150% of direct labor costs. Any overapplied or underapplied factory overhead is
closed to the cost of goods sold account at the end of the month. Additional information is available
as follows: Job 101 was the only job in process at January 31, 2018 with accumulated costs as
follows:

Direct Materials P4,000

Direct labor 2,000
Factory overhead applied 3,000
 Job 102, 103 and 104 were started during February. Direct material requisitions for the month
totaled P26,000. Direct labor costs of P20,000 were incurred for the month. Actual factory overhead
was P32,000. The only job still in process at the end of February was Job 104, with costs of P2,800
for direct materials and P1,800 for direct labor.

The cost of goods manufactured for February was:

a. P78,000
b. P85,000
c. P77,700
d. P79,700

11. At the beginning of the year, manufacturing overhead for the year was estimated at P477,590. At
the end of the year, actual direct labor-hours for the year were 29,000 hours, the actual
manufacturing overhead for the year was P472,590 and manufacturing overhead for the year was
overapplied by P110. If the predetermined overhead rate is based on direct labor-hours, then the
estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate
must have been:
a. 29,300 direct labor hours
b. 28,987 direct labor hours
c. 28,993 direct labor hours
d. 29,000 direct labor hours

12. In reviewing the accounting records at year-end, KayaKoNi Company’s accountant has determined
that the following items and amounts were debited to the Manufacturing Overhead account during
the year:

Factory supervisors salary P8,000

Sales commissions 7,000
Vacation pay for the materials storeroom clerk 2,000

Including the items listed above, the debits to the manufacturing overhead account totaled
P245,000 for the year. Credits to the account totaled P240,000 for the year. Based on this
information, if all entries had been made correctly during the year, the manufacturing overhead
account would have been:
a. Over-applied by P4,000
b. Over-applied by P12,000
c. Under-applied by P2,000
d. Over-applied by P2,000

For items number 13 – 15, refer to the following problem:

WayLisodProblem Inc. uses a job-order cost system. The information below is from the financial records
of the company for last year:

Total manufacturing costs P2,500,000

Cost of goods manufactured 2,425,000
Predetermined overhead rate 80% of direct labor cost

Applied overhead was 30% of total manufacturing costs. The work in process inventory at January 1 was
75% of the work in process inventory at December 31.
13. WayLisodProblem Inc. total direct labor cost was:
a. P750,000
b. P600,000
c. P900,000
d. P937,500

14. Total cost of direct material used by WayLisodProblem Inc. was:

a. P750,000
b. P812,500
c. P850,000
d. P1,150,000

15. The work in process inventory at December 31 was:

a. P300,000
b. P225,000
c. P100,000
d. P75,000