La Salle University

College of Business and Accountancy

First Semester of Academic Year 2019-2020
PRELIM EXAMINATION
STRATEGIC COST MANAGEMENT
by Prof. Christian Jake M. Yting, CPA, MBA
September 10, 2019

I. True or False (20 points). Write “TRUE” if the 18. If processing department are arranged in a parallel
statement is correct or “FALSE” if the statement is manner, all units will go through all departments.
wrong. 19. In process costing system, a Work in Process
1. The closing entries necessary under the perpetual account is maintained for each department.
and periodic inventory systems do not differ 20. On a production report, labor and overhead costs
because all expenses and income must be closed. are often added together and called conversion
2. Graphically, the economic order quantity (EOQ) is costs.
the point where the carrying cost line intersect the
II. Multiple Choice (20 points). Select the letter of the
ordering cost line.
best answer in each of the given question. Write your
3. The accounting for spoiled and defective units is the
answers in your green booklet.
same.
4. When a company changes from one inventory
1. In a well-controlled materials system, the
costing method to another, the change must be
Purchasing Department performs all of the
fully disclosed in a footnote to the financial
following activities except the:
statements explaining the reasons for the change.
A. placing of purchase orders with suppliers
5. The purchase price per unit is irrelevant in the
B. receiving of purchase requisitions
economic order quantity (EOQ) model.
C. maintaining of information on market prices for
6. The direct method is a method of cost allocation
goods used
that charges cost of service department to user
D. approving and checking of invoices
departments and ignores any services used by other
service departments.
2. A company has been ordering more than the
7. Under the step method of allocation, the final
economic order quantity. This would result in:
amount of pesos allocated to any production
A. more frequent order points
department is influenced by the order in which the
B. carrying costs greater than order costs
allocation is made from the service departments.
C. equal safety stock costs and carrying costs
8. When overapplied overhead is assigned to Cost of
D. carrying costs less than order costs
Goods Sold, the effect is to increase the balance on
the Cost of Goods Sold account.
3. The expense that theoretically is not a correct part
9. Overapplied overhead occurs when actual is less
of inventory cost is:
than applied OH.
A. freight-in C. purchasing costs
10. With the algebraic method, each department’s cost
B. freight-out D. none of the choices
are set out in an equation where total costs equal
the sum of direct costs and allocated results.
4. The purchasing department performs all of the
11. In ideal circumstances, each payroll check is
following functions except:
delivered personally to the employee to signs a
A. receives purchase requisitions for materials,
receipt for it.
supplies, and equipment
12. Remuneration for manual labor, both skilled and
B. keeps informed concerning sources of supply,
unskilled, is commonly referred to as salaries.
prices, and delivery schedules
13. To avoid congestion at the time clock, it is desirable
C. prepares and places purchase orders
that one employee punch in or out for several other
D. compares quantities received with the suppliers'
employees.
packing list
14. Direct labor cost is recorded by a debit to Work in
Process account.
5. The purchase requisition may originate with all of
15. Total factory labor cost is composed of direct labor
the following except:
and indirect labor.
A. a storeroom employee
16. Process costing is used when identical units are
B. a materials record clerk
produced an ongoing series of uniform steps.
C. a receiving department clerk
17. In a process costing system, the cost of production
report takes the place of the job cost sheet.

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 D. a research, engineering, or other department 12. Fixed overhead cost includes all of the following
employee who needs materials of a special except:
nature A. Electricity to heat and light the factory.
B. Depreciation on machinery computed based
on the units of production basis.
6. Listed below are steps of procuring materials for C. The plant manager’s salary.
D. The salary of the security guard at the front
production:
door.
1. The receiving clerk checks the quantity and
13. The method of distributing service department
quality of incoming materials. costs to production departments that takes into
2. The purchasing agent issue the purchase order consideration that service departments not only
to the vendor. may provide service to but also may receive service
3. The production floor supervisor issues a from other service departments is the:
materials requisition. A. Direct distribution method.
4. The storeroom clerk issues a purchase B. Sequential distribution method.
requisition. C. Service department distribution method.
D. Reciprocal method
In which order would these events typically .
happen? 14. Which of the following is most likely to be
considered a service department in a manufacturing
A. 3, 2, 4, 1 C. 2, 1, 3, 4
plant?
B. 3, 4, 2, 1 D. 4, 2, 1, 3
A. Assembly C. Finishing
B. Janitorial D. Fabrication
7. A wage plan based solely on an employee's quantity
of production is known as a(n): 15. The following cost is an example of a variable
A. Modified wage plan C. Piece-rate plan factory overhead cost:
B. Hourly-rate plan D. Incentive wage plan A. Plant utilities.
B. Maintenance costs.
8. For a factory worker, all of the following are C. Salary of the plant manager.
charged to Factory Overhead except: D. Factory supplies.
A. the shift premium paid because the worker
works the “graveyard” shift. PROBLEM
B. the payroll taxes related to direct labor time.
C. the overtime premium paid as a result of a 16. Murphy Company uses 3,000 yards of material each
day to make hats. It usually takes five days from the
“rush” job stipulated by the customer contract.
time Murphy orders the material to when it is
D. the make-up guarantee paid because the
received. If Murphy’s desired safety stock is 6,000
employee did not reach the quota set forth in a yards, what is Murphy’s order point?
modified wage plan. A. 6,000 yards C. 15,000 yards
B. 12,000 yards D. 21,000 yards
9. When scheduling delays occur throughout the week
and results in a specific job being completed during 17. During March, Hart Company incurred the following
an overtime shift, the overtime premium is charged costs on Job 122 for the manufacture of 200 motors
to: Original cost accumulation:
A. Accrued Overtime Premium Receivable Direct materials ₱2,600
B. Work in Process Direct labor 900
C. the job worked on during the overtime premium Factory overhead 1,350
D. an extraordinary loss account ₱4,850
Direct costs of reworking 10 units:
E. Factory Overhead Control
Direct materials ₱ 100
Direct labor 180
10. A cost object in a process cost system is usually a:
Factory overhead 270
A. Department. C. Specific product.
₱ 550
B. Job. D. Employee. The rework costs were attributable to the exacting
specifications of Job 122, and the full rework costs were
11. The number of whole units that could have been charged to this specific job. What is the cost per
completed during a period, using the production finished unit of Job 122?
costs incurred during that period is called:
A. Standard production C. Total units.
A. ₱25.00 C. ₱27.00
B. Equivalent production D. Manufactured units.
B. ₱23.50 D. ₱24.00

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18. The following data pertains to Western Company’s The materials account of the Flynn Company reflected
materials inventory: the following changes during May:
Number of pounds required annually 16,000
Balance, May 1 500 units @ ₱10
Cost of placing an order ₱20
Received, May 5 300 units @ ₱12
Annual carrying cost per pound of material ₱4
Issued, May 10 400 units
What is Western Company’s EOQ?
Received, May 15 200 units @ ₱15
A. 400 pounds C. 4,000 pounds
Issued, May 25 300 units
B. 200 pounds D. 800 pounds
Required:
19. Under a modified wage plan, Jim Phillips works an Assuming that Flynn Company maintains perpetual
eight-hour day and earns ₱.50 for each finished unit inventory records, calculate the ending inventory at May
he produces in excess of 200 units. However, he is 31 and the cost of the units issued in May using each of
guaranteed ₱12.50 per hour as a minimum the following methods:
wage. His production this week was as follows: (a) First in, first out (FIFO) (5 points)
Monday 220 units (b) Moving average (5 points)
Tuesday 180 units
PROBLEM 3:
Wednesday 200 units
Barcelona Beach Products reports the following data for
Thursday 200 units
Friday 190 units the first department in its production process:
What were Jim’s total earnings this week? Units in process at beginning of period (all materials;
A. ₱500 C. ₱495
3/4 labor and factory overhead) ............................. 5,000
B. ₱510 D. ₱515
Units started in process ........................................ 35,000
20. Meger Manufacturing uses the direct labor cost
method for applying factory overhead to Units transferred out ............................................ 33,000
production. The budgeted direct labor cost and
Units still in process (all materials; 1/2 labor and factory
factory overhead for the previous fiscal year were
overhead) ................................................................ 5,000
₱1,000,000 and ₱800,000, respectively. Actual
direct labor cost and factory overhead were Units completed but not yet transferred to Finished
₱1,100,000 and ₱825,000, respectively. Goods ..……… 2,000

What is the amount of under- or overapplied Related data:

factory overhead?
A. ₱25,000 overapplied Materials – P100,000
B. ₱55,000 overapplied Labor - P125,400
C. ₱80,000 overapplied Factory Overhead – P173,500
D. ₱50,000 underapplied
Required: Using the average costing method:
STRAIGHT PROBLEMS (20 points): Answer the
following problems with the best of your ability. Show (a) Compute for the EUP for materials, labor and factory
necessary solutions. (Choose only 2 Problems) overhead (5 points)
PROBLEM 1:
(b) Compute the unit cost for materials, labor, and
Becky Graham earns ₱15 per hour for up to 300 units of
production per eight-hour day. If she produces more factory overhead (5 points).
than 300 pieces per day, she will receive an additional PROBLEM 4:
piece rate of ₱.40 per unit. A summary of her work Factory overhead for the Praeger Company has been
week follows: estimated as follows:
Hours Worked Pieces Finished Fixed overhead ₱122,500
Monday 8 350
Tuesday 8 280 Variable overhead ₱90,000
Wednesday 8 320 Budgeted direct labor hours 42,500
Thursday 8 290
Friday 8 300
Required: Production for the month was 90 percent of the budget,
and actual factory overhead totaled ₱175,000.
(a) Determine Graham’s earnings for each day and for
the week (5 points). Required:
(b) Prepare the journal entry to distribute the payroll for a. The predetermined factory overhead rate. (5 points)
the week ( 5 points) .
The under- or overapplied factory overhead. (5
b.
PROBLEM 2: points)

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PROBLEM 1:

(a) Graham’s earnings are calculated as follows:

Hours Pieces Earnings @ Earnings @ Make-up Payroll

Worked Finished ₱15.00/hr ₱.40/unit Guarantee Earnings
Monday 8 350 ₱120 ₱140 ₱140
Tuesday 8 280 120 112 ₱ 8 120
Wednesday 8 320 120 128 128
Thursday 8 290 120 116 4 120
Friday 8 300 120 120 120

₱600 ₱616 ₱12 ₱628

(b)
Work in Process 616
Factory Overhead 12
Payroll 628

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Problem 2:
(a) FIFO:
Received Issued Balance
Unit Unit
Date Quantity Price Amount Quantity Unit Price Amount Quantity Price Amount
5/1 500 ₱10 ₱5,000
5/5 300 ₱12 ₱3,600 500 10

300 12 8,600
5/10 400 ₱10 ₱4,000 100 10

300 12 4,600
5/15 200 15 3,000 100 10

300 12

200 15 7,600
5/25 100 10 1,000

200 12 2,400 100 12

200 15 4,200

Ending Inventory:
300 units having a total cost of ₱4,200 (100 units x ₱12) + (15 units x ₱15)

Cost of Units Issued:

700 units having a total cost of ₱7,400 (4,000 + 1,000 + 2,400)

(b) Moving Average:

Received Issued Balance
Unit Unit
Date Quantity Amount Quantity Unit Price Amount Quantity Amount
Price Price
5/1 500 10 5,000
5/5 300 12 3,600 800 10.75 8,600
5/10 400 10.75 4,300 400 10.75 4,300
5/15 200 15 3,000 600 12.17 7,300
5/25 300 12.17 3,650 300 12.17 3,650

Ending Inventory:
300 units having a total cost of ₱3,650

Cost of Units Issued:

700 units having a total cost of ₱7,950 (4,300 + 3,650)
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Unit cost calculations:
₱8,600 / 800 = ₱10.75

₱7,300 / 600 = ₱12.16667

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Problem 3:

SOLUTION

(1) Materials: (₱100,000 + ₱304,000) / 40,000 units* = ₱10.10 per unit

Labor: (₱125,400 + ₱407,100) / 37,500 units* = ₱14.20 per unit

Factory overhead: (₱173,500 + ₱407,750) / 37,500 units = ₱15.50 per unit

*Equivalent production:

Materials: 33,000 + 2,000 + 5,000 = 40,000 units

Labor and factory overhead: 33,000 + 2,000 + (1/2 x 5,000) = 37,500 units

(2) Units in process at end of period:

Completed and on hand (2,000 x ₱39.80) ...................................................... ₱ 79,600

Materials (5,000 units x ₱10.10) .................................................................... 50,500

Labor (5,000 units x 1/2 x ₱14.20) ................................................................. 35,500

Factory overhead (5,000 units x 1/2 x ₱15.50) ............................................... 38,750

₱ 204,350

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Problem 4:

₱122,500 + ₱90,000 ₱5.00

(a) =
Predetermined overhead rate DLH
42,500 DLH
=

(b) Applied overhead (38,250 hrs* × ₱5.00/DL hr) ₱191,250

Actual overhead 175,000
Overapplied factory overhead ₱ 16,250

* 42,500 budgeted hours x 90% actual production level = 38,250 hours

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