Chapter 1 Cost Concepts, Classifications and Accounting Cycle

Summary of Answers
Exercise 1-1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Administrative Expense
Factory Overhead
Factory Overhead
Direct Labor
Factory Overhead
Selling Expenses
Factory Overhead
Factory Overhead
Factory Overhead
Selling Expenses

11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Selling Expenses
Selling Expenses
Factory Overhead
Selling Expenses
Factory Overhead
Selling Expenses
Selling Expenses
Factory Overhead
Selling Expenses
Administrative Expenses

Exercise 1-2
1. Product/Service Costs
2. Product/Service Costs
3. Period Costs
4. Period Costs
5. Period Costs
6. Period Costs
7. Product/Service Costs
8. Period Costs
9. Product/Service Costs
10. Period Costs

11. Product/Service Costs

12. Product/Service Costs
13. Product/Service Costs
14. Product/Service Costs
15. Period Costs
16. Product/Service Costs
17. Period Costs
18. Product/Service Costs
19. Product/Service Costs
20. N/A

Exercise 1-3
1. hfajkak
2. P0.125
3. Highest: 3750
4. 15000

Lowest: 1500

Exercise 1-4
1. a, P 352820
d. P 314711
b. 1. P 140000
e. P 472067
2. P 113205
f. P 157356
3. P 84904
c. P 339615

21. Product/Service Costs

22. N/A
23. N/A
24. Product/Service Costs
25. N/A

2. Journal Entries
a. Raw Materials
Accounts Payable

240000

b. Work in Process
Manufacturing Overhead
Raw Materials

168000
12000

c. Factory Payroll
Accrued Payroll

150000

Work in Process
Manufacturing Overhead
Work in Process

120000
30000

240000

180000

150000

150000

d. Manufacturing Overhead
Accumulated Depreciation

12000
12000

e. Manufacturing Overhead
Taxes Payable

1500

f. Manufacturing Overhead
Prepaid Insurance

4320

Manufacturing Overhead
Utilities Payable

5 000

1500

4320

5000

2. (Financial Statement)
Exercise 1-5
a.
b.
c.
d.
e.
f.
g.
h.
i.

Exercise 1-6

P 86 500
a. P600 000
P 12 500
b. P 252 000
P7 500
c. P 682 000
P80 500
d. P190 960
P24 500
P11 000Exercise 1-7
6. B
P55 000
(below, Table 1.3)
P15 000
P148 500

Test Material 1.1 Multiple Choice Theories

1. B
2. B
3. C
4. C
5 A

11. D
12. D
13. C
14. D
15. A
16. D

7. B
8. B
9. B

21. C
22. D
23. C
24. D
25. A
26. C

17. C
18. C
19 .D
10. C

27. D
28. A
29. C
20. D

30. D

Exercise 1-7 (Table 1.3)

Item Number
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15. Other Category
16. Other Category
17. Other Category
18.
19.
20.
Total

Direct
Materials
P 50 000
20 000

True
True
False
False
False
True
False
False
False
False

11. P 930000
12. P 127000
13. P 4500
14. P 88500
15 P 742500

Manufacturing
OH

P 2 500
P 15 000
5 000
1 200
28 000
2 800
8 500
3 500
9 000
800
2 400

5 000
P 103 000

1 500
7 500
P 37 500

P 15 000
Test Material 1-3

11. False
12. True
13. False
14. True
15. True
16. False
17. False
18. False
19. True
20. False

1.
2.
3.
4.
5.

Period Cost

P 10 000

Test Material 1-2

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Direct Labor

1. Direct Material
2. Direct Material
3. Factory Overhead
4. Period Costs
5. Direct Labor
6. Period Costs
7. Period Costs
8. Direct Material
9. Factory Overhead
10. Period Costs

Test Material 1-5

C
11. A
D
12. D
D
13. C
C
14. C
A
15. B

P 17 200
Test Material 1-4

11. Factory Overhead

12. Factory Overhead
13. Factory Overhead
14. Factory Overhead
15. Period Costs

Test Material 1-6

1. C
11. B
12. C
2. A
13. A
3. B
14. B
4. B
15. A
5. C

1. P2
2. P19171.84
3. P3432000
4. P60000
5. P9000
6. P12000
7. P215000
8. P475000
9. P3110000
10. P3450000

21. B
22. C
23. D
24. C

16. P 1049000
17. P 1108500
18. P 156200
19. P 41700
20. P 3432000

6.
7.
8.
9.
10.

A
B
B
C
A

16.
17.
18.
19.
20.

D
B
B
A
C

6. B
7. D
8. B
9. B
10.A

16. C
17. B
18. B
19 B
20.B

______________________________________________________________________________
COMPUTATIONS:
Exercise 1-1 Ex 1-1. Cost classification. Classify the following as direct materials (DM) , direct
labor (DL) , factory overhead (FOH) , administrative (AD) ,and selling (SE) expenses by putting a
check on the appropriate column.

DM

DL

FOH

Wages of company officials other the plant

supervisor.

Wages of raw material inventory clerk.

Wages of finished goods inventory clerk.

Wages of ironworker in a construction company.

Transportation and representation allowance of
plant managers and supervisors.
Transportation and representation allowance of
sales managers.
Wood glue and other related adhesives used by
furniture factories.
Buttons, threads and zippers used by ready to
wear manufacturing company.
Lubricating oil used by factories in their
operations.

10

Gas and oil used by the company president.

5
6
7
8

Gas and oil used by trucking company.

Electric and power consumption of the
12 administrative office.
Electric and power consumption of factory
13 companies.
Depreciation of delivery truck of a manufacturing
company used un delivering finished goods to
14 customers.

AD

SE

11

15

19

Cloth used by a ready to wear factory.

Cloth used by advertising companies in making
billboards.
Cost of daily advertisements in local newspaper
regarding new product line.
Overtime pay of the employee who repairs the
companys copier.
Cost of renting a private helicopter to fly along
the grandstand pulling a banner advertising a
new product.

20

Cost of dishes broken by restaurant servers.

16
17
18

Ex 1-2 Cost Classification. Classify each cost as product cost or period cost by putting a check
mark on the appropriate column. If the item is not appropriate to be the product or period costs ,
write N/A to both columns.

Product
Cost
1

Period
Cost

Depreciation of plant and machineries.

Depreciation of sports equipment used by sports and fitness
center.

Depreciation of delivery equipment of trading companies.

Depreciation of service vehicle used by sales person.

Depreciation of office equipments.

Paper and toner used for office copier machine.

Paper used by printing company.

Paper and plastic bags used by supermarkets.

Bonuses paid to factory workers of an efficient performance.

10

Transportation costs of goods delivered to customers.

11

Transportation costs of goods purchased from suppliers.

12

Cost of medical supplies of a hospital.

15

Cost of continuing education of a resident physician in a

hospital.
Transportation expenses of a resident doctor in attending
seminar abroad.
Costs of goods served to the visitors of the company
president.

16

Costs of food served by restaurant owners to their customers

17

Gas and oil consumed by sales manager.

18

Gas and oil consumed by plant machineries

19

Gas and oil consumed by trucking companies.

20

Gas and oil consumed by the company president.

Cost of insurance intended for the workers of a construction
company.
Cost of newspaper ads to the announcement of new office
location.
Salaries and compensation and other benefits paid to Human
Resource Manager.
Salaries and compensations and other benefits paid to
workers of a factory.
Maintenance costs for the family vehicle of the company
executive officer.

13
14

21
22
23
24
25

Ex 1-3 High-Low Method.

Dagupan Trans Inc. has incurred the following bus maintenance costs during the past six months.
Miles Travelled

Maintenance

Costs
January

12,750

17,100

February

15,900

17,400

March

19,050

17,550

April

22,500

18,000

May

30,000

18,750

June

12,000

16,500

Required: Using high-low method to separate mixed cost, estimate the total fixed costs component
of the maintenance costs.
Highest
Lowest
Difference

Machine Cost
18750
-16500
2250

Miles Traveled
30000
12000
18000

2. Variable Cost per Unit: 2250 / 18000 = 0.125

3. Compute Variable Cost at Highest and Lowest Level of Activity
Highest Level
Lowest Level

30000 * 0.125 = 3750

12000 * 0.125 = 1500

4. Determining Fixed Cost at each level of activity

Highest Level
Lowest Level

18750 - 3750 = 15000

16500 - 1500 = 15000

Ex 1-4 Actual Costing Method

During the month of July, the following transactions were completed and reported by Bubbles
Manufacturing Company.
a. Raw materials purchased on account, P240,000
b. Materials requisitioned for the month was P180,000 , P12,000 of which were factory
supplies.
c. Factory payroll for the month was P150,000 of which P30,000 was for indirect laborers.
d. Depreciation on factory plant and equipment for the month is P12,000
e. Factory taxes amounted to P1,500
f. Factory insurance expired amounted to P4,320
g. Factory utilities for the month amounted to P5,000
Additional Information:
a. Actual overhead is charged to production.
b. 75% of the jobs put into process are completed.
c. All beginning inventory plus 75% of the goods completed during the period were delivered
to customers at 50% mark-up cost. The companys terms on sales are 30 days.
Inventories reported by the company at the beginning of the month are:
Raw Materials

P80,000

Work in Process

P100,000

Finished Goods

P60,000

REQUIRED:
(1) Determine the following:
a. The total manufacturing cost for the period. P 352820
b. The balances of the inventory accounts at the end of the month.
1. Raw Materials P 140000
2. Work in Process P 113205
3. Finished Goods P 84904
c. The costs of goods manufactured amounts to P 339615
d. The costs of goods sold amounts to P 314711
e. The sales price of the goods sold amounts to P 472067
f. Gross profit for the period amounts to P 157356
(2) Journal Entries to record the above (Use a yellow pad for your entries.)
(3) Prepare a Statement of Costs of Goods Manufactured and Sold, in good form

a. RM inventory, July 1
Add: Purchases
Raw Materials Available
Less: RM inventory, July 31
(80000+240000-180000)
Indirect Material
Raw Materials
Direct Labor
Manufacturing Overhead
Total Manufacturing Cost

P 80000
240000
P 320000

b. 1. RM inventory, July 1
Add: Purchases
Materials Used
RM inventory, July 31

P 80000
240000
-180000
P 140000

2. WIP, July 1
Direct Material
Direct Labor
Manufacturing Overhead
Total Cost of Work put into Process
Multiply by
WIP, July 31

P 100000
168000
120000
64820
P 452820
25%
P 113205

3. Cost of Goods Manufactured

Multiply by

P 339615
25%

-140000
-12000
P 168000
120000
64820
P 352820

Finished Goods

P 84904

c. Total Cost of Work put into Process

Multiply by
Cost of Goods Manufactured
d. Finished Goods, July 1
CGM
(339615*75%)
Cost of Goods
Sold

P 452820
75%
P 339615
P 60000
254711
P 314711

e. (Journal Entries)
f.
Bubbles Manufacturing Company
Statement of Cost of Goods Sold
July 31, 2012
Raw Materials Used:
RM iventory, July 1
Add: Purchases
Raw Materials
Less: Inventory, July 31
Indirect Materials Used
Direct Labor
Manufacturing Overhead
Indirect Materials Used
Indirect Labor
Depreciation
Insurance
others
Total Manufacturing Costs
Add: Work in Process, July 1
Total Cost of work put into Process
Less: Work in Process, July 31
Cost of Goods Manufactured
Add: Finished Goods, July 1
Goods Available for sale
Less: Finished Goods, July 31
Cost of Goods Sold

P 80000
240000
P 320000
P 140000
12000

152000 P 168000
120000
P 12000
30000
12000
4320
6500

64820
P 352820
100000
P 452820
-113205
P 339615
60000
P 399615
84904
P 314711

EXERCISE 1-5
a.) Direct Materials Used

P 41 500

Direct Labor
Manufacturing Overhead
Total Manufacturing Cost

15 000
30 000
P 86 500

b.) Total Manufacturing Cost

Add: Work in Process, Beginning
Total Cost of Goods placed into process
Less: Cost of Goods Manufactured
Work in Process, Ending Inventory

P 86 500
5 000
P 91 500
(79 000)
P 12 500

c.) Cost of Goods Available for Sale

Less: Cost of Goods Manufactured
Finished Goods, Beginning

P 86 500
(79 000)
P 7 500

d.) Cost of Goods Available for Sale

Less: Finished Goods, Ending Inventory
Cost of Goods Sold

P 86 500
(6 000)
P 80 500

e.) Sales
Less: Sales Discount
Net Sales
Less: Cost of Goods Sold
Gross Profit

P 112 500
(7 500)
P 105 000
80 500
P 24 500

f.) Gross Profit

Less: Operating Expenses
Net Income

P 24 500
(13 500)
P 11 000

g.) Total Manufacturing Cost

Less: Direct Labor
Manufacturing Overhead
Direct Materials Used

P 100 000
(20 000)
(25 000)
P 55 000

h.) Cost of Goods Manufactured

Add: Work in Process, Ending Inventory
Total Cost of Goods placed Into process
Less: Total Manufacturing Cost
Work in Process, Beginning

P 105 000
10 000
P 115 000
(100 000)
P 15 000

i.) Gross Profit

Add: Cost of Goods Sold
Sales Discount
Sales

P 30 000
112 000
6 000
P 148 500

j.) Cost of Goods Manufactured

Finished Goods, Beginning
Cost of Goods Available for Sale

P 105 000
20 000
P 125 000

k.) Cost of Goods Available for Sale

Less: Finished Goods, Ending Inventory
Cost of Goods Sold

P 125 000
12 500
P 112 500

l.) Gross Profit

Less: Operating Expenses
Net Income

P 30 000
(16 000)
P 14 000

EXERCISE 1-6
a.) Direct Materials Issued to Production
Direct Labor (150 000 x 80%)
Total Prime Cost for the Period

P 480 000
120 000
P 600 000

b.) Indirect Materials Issued

Indirect Labor (150 000 x 20%)
Depreciation of Sewing and Comp. equipment
Utilities Paid
Factory Insurance Expired
Factory Rent (Net of 10 000 deposit & 5000 adv. rental)
Total Manufacturing Overhead
Add: Direct Labor (50 000 x 80%)
Total Conversion Cost for the Period

P 4 500
30 000
8 000
22 000
7 500
60 000
P 132 000
120 000
P 252 000

c.) Direct Materials Issued to Production

Direct Labor (150 000 x 80%)
Manufacturing Overhead
Total Manufacturing Cost
Less: Work in Process, Ending Inventory
Cost of Goods Manufactured for the year

P 480 000
120 000
132 000
P 732 000
(50 000)
P 682 000

d.) Cost of Goods Manufactured for the year

Multiply by: Percentage of units sold
Cost of Goods Sold
Multiply by: Percentage of Gross profit
Gross Profit for the Period

P 682 000
80%
P 545 600
35%
P 190 960

EXERCISE 1-7
Item Number
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35. Other Category
36. Other Category
37. Other Category
38.
39.
40.
Total

Direct Materials

Direct Labor

Manufacturing
OH

P 50 000
20 000
P 10 000
P 2 500
P 15 000
5 000
1 200
28 000
2 800
8 500
3 500
9 000
800
2 400

5 000
P 103 000

P 15 000

1 500
7 500
P 37 500

Test Material 4
1.
Highest
Lowest
Difference

Machine hours
1200
400
800

Power costs
14400
12800
1600

VC/unit = 1600/800 = P 2
2.
Highest
Lowest
Difference
VC/unit
Fixed cost:
(highest)

Period Cost

Hrs. worked
3360
2600
760
= 3380/760
= P4.447368421
= 3360 x 4.447368421
= P 14943.16

Utility costs
21440
18060
3380

P 17 200

(lowest)

= 2600 x 4.447368421
= P 11563.16

Highest

= P21440 - 14943.16
= P6496.84

Lowest

= P18060 - 11563.16
= P6496.84

Total Utility costs

= (P 2850 x 4.447368421) + 6496.84

= P 19171. 84

3. Gross Profit
Cost of goods manufactured
Increase in finished goods
Total sales
4. Cost of fabric used in dresses

P 768000
2720000
(56000)
P3432000
P 60000

5. Wages of dressmakers
Wages of dress designers
Direct labor

P 5000
4000
P 9000

6. Wages of the maintenance employee

Cost of electricity in the shop
Cost of space rental

P 2000
3500
6500

Overhead

P12000

7. Office depreciation
Freight costs for goods delivered to customers
Janitors wages for cleaning the office
Total selling, general & administrative expenses
Period costs

P28000
12000
10000
165000
P215000

8. Materials
Direct labor
Factory depreciation
Freight costs for materials purchased
Janitors wages for cleaning the production area
Product costs

P264000
143000
50000
8000
10000
P475000

9. Direct material [1640000-(1640000x10%)+540000-570000]

Direct labor
MOH (164000+180000+360000+120000)
Total factory costs

10. Total factory costs

Work in process-beg.
Work in process-end.
Cost of goods manufactured
Finished goods-beg.
Finished goods-end.
Cost of goods sold

P1446000
840000
824000
P3110000

P3110000
600000
(440000)
P3270000
580000
(400000)
P34500000

11. Gross Profit [(3450000/75%) x 25%]

Office salaries
Sales salaries
Net Income

P1150000
(140000)
( 80000)
P 930000

12. Total factory costs (P12500+45000+90000)

Cost of goods manufactured
WIP, end.
WIP, beg.

(P 147500)
237000
37500
P 127000

13. Cost of goods available for sale

Goods produced
FG, end
Increase in FG

P 259500
(237000)
( 18000)
P 4500

14. Sales (337500-7500)

Cost of goods available for sale
FG, end
Gross Profit

P 330000
(259500)
18000
P 88500

15. Gross Profit

Sales Discount
Cost of goods sold
Sales

P150000
30000
562500
P742500

16. Direct labor

Direct materials
MOH (110000+50000+31000+8000+5000)

P 350000
460000
239000

Total factory costs

17. Total factory costs
WIP, beg.
WIP, end.
Cost of goods manufactured

P1049000
P1049000
220000
(160500)
P1108500

18. Total Factory costs (P62400 +32000+ 64000)

WIP, beg.
WIP, end
Cost of goods manufactured

P 158400
14700
(16900)
P 156200

19. Sales
Cost of goods sold (156200 +12600 -10500)
Gross Profit

P 200000
(158300)
P 41700

20. Same answer and solution in number 3.

Test Material 5
1. Direct Materials (174000-132000+1500000)
Direct labor [(21000x45) + (1000x45)]
Prime costs

P 1542000
990000
P 2532000 c.

2. Direct labor (21000x45)

MOH [(300000 +175000 + (1.5 x 45)]
Conversion costs

P 945000
542500
P 1487500 d.

3. d.
Materials (3200000-180000)
Labor [6900000+(2040000-320000)-2040000=6580000]
[6580000+(800000 x 90%)-800000=6500000-3020000 / 160%]
Overhead (2175000 x 60%)

P 3020000
P 1275000
P1305000

4. Prime Costs
Direct labor (4500000/150%)
Decrease in raw materials
Raw material purchases

P 6750000
(3000000)
( 250000)
P 3500000 c.

5. Direct material (4400000+9000000-2800000-850000)

Conversion costs [6500000+1250000+560000+(1200000x60%)
+(600000x60%)+(1500000x60%)+850000]
WIP, beg.
WIP, end.
Cost of goods manufactured

P 9750000
11400000
3000000
(2400000)
P21490000 a.

6. Cost of goods manufactured

FG, beg.
FG, end.
Cost of goods sold
Divided by:
Total sales

P 21490000
2400000
(2950000)
P 20940000
75 %
P 27920000 a.

7. c.
Work in process inventory:
{[7920000 / (38.50-30.80)] x 30.80} = 3520000
3520000 + 13680000 17400000
= decrease of 200000
Finished goods inventory:
(17400000+1500000-16800000) = 2100000
2100000-1500000
= increase of 600000
8. Sales (25000 / 12.5 %)
Gross profit (25000+25000)
Cost of goods sold

P 200000
( 50000)
P150000 b.

9. Beginning:
Materials (50000+30000)
Labor (80000+60000)
OH (120000+90000)
Cost added:
Materials (80000+50000+75000)
Labor (100000+80000+110000)
OH (290000 x (120000/80000)
Finished goods, end

P 80000
140000
210000
P 205000
290000
435000
P1010000 c.

10. Overhead applied

Overhead actual
Over applied
11. Total manufacturing cost:
P 975000-600000+55000-40000+15000-35000

P 435000
(420000)
P 15000 a.

12. Total raw materials purchased:

P 370000-(520000-400000)-(120000/75%)+10000-5000 =

P 370000 a.
P 95000 d.

13. FG, end:

P 85000+970000-110000 + (48000 x 20) + (48000 x 20 x 60%) + 90000 271000
+180000-(1050000/60%) = 730000 c.
14. Sales revenue:

P 1050000/60% = P 1750000 x 160% = P 2800000 b.

15. Direct labor (30101.80/ 50%)
MOH
CC

P 60203.6
30101.8
P 90305.40 / 50% = P180610.80

P 180610.80 + 590 = P 181200.80 b.

16. RM available for used
RM issued to production
RM, beg. (47500-37500)
Increase in RM

P 47500
(30000)
(10000)
P 7500 d.

17. b.
Direct material (P 15000+ 33000 19000 1000)
MC (P 12000+30000-40000)
FG, June 30 (P 190000-140000)

P 28000
P 110000
P 50000

18. Materials (P 380000-20000)

Direct labor (P 420000-40000)
Prime costs

P 360000
380000
P740000 b.

19. MOH (P 380000 / 20 =P 19000 x 28)

Prime costs
WIP, beg.
Cost of goods manufactured
WIP, end

P 532000
740000
20000
940000
P 352000 a.

20. Same solution and answer in number 7.