Chapter 1 Cost Concepts, Classifications and Accounting Cycle

Summary of Answers
Exercise 1-1
1. Administrative Expense 11. Selling Expenses
2. Factory Overhead 12. Selling Expenses
3. Factory Overhead 13. Factory Overhead
4. Direct Labor 14. Selling Expenses
5. Factory Overhead 15. Factory Overhead
6. Selling Expenses 16. Selling Expenses
7. Factory Overhead 17. Selling Expenses
8. Factory Overhead 18. Factory Overhead
9. Factory Overhead 19. Selling Expenses
10. Selling Expenses 20. Administrative Expenses

Exercise 1-2
1. Product/Service Costs 11. Product/Service Costs 21. Product/Service Costs
2. Product/Service Costs 12. Product/Service Costs 22. N/A
3. Period Costs 13. Product/Service Costs 23. N/A
4. Period Costs 14. Product/Service Costs 24. Product/Service Costs
5. Period Costs 15. Period Costs 25. N/A
6. Period Costs 16. Product/Service Costs
7. Product/Service Costs 17. Period Costs
8. Period Costs 18. Product/Service Costs
9. Product/Service Costs 19. Product/Service Costs
10. Period Costs 20. N/A

Exercise 1-3
1. hfajkak
2. P0.125
3. Highest: 3750 Lowest: 1500
4. 15000

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
 2. Journal Entries

a. Raw Materials 240000

Accounts Payable 240000

b. Work in Process 168000

Manufacturing Overhead 12000
Raw Materials 180000

c. Factory Payroll 150000

Accrued Payroll 150000

Work in Process 120000

Manufacturing Overhead 30000
Work in Process 150000

d. Manufacturing Overhead 12000

Accumulated Depreciation 12000

e. Manufacturing Overhead 1500

Taxes Payable 1500

f. Manufacturing Overhead 4320

Prepaid Insurance 4320

Manufacturing Overhead 5 000

Utilities Payable 5000

2. (Financial Statement)
Exercise 1-5 Exercise 1-6 Test Material 1.1 Multiple Choice Theories
a. P 86 500 a. P600 000 1. B 11. D 21. C
b. P 12 500 b. P 252 000 2. B 12. D 22. D
c. P7 500 c. P 682 000 3. C 13. C 23. C
d. P80 500 d. P190 960 4. C 14. D 24. D
e. P24 500 5 A 15. A 25. A
f. P11 000 Exercise 1-7 6. B 16. D 26. C
g. P55 000 (below, Table 1.3) 7. B 17. C 27. D
h. P15 000 8. B 18. C 28. A
i. P148 500 9. B 19 .D 29. C
10. C 20. D 30. D
Exercise 1-7 (Table 1.3)
Item Number Direct Direct Labor Manufacturing Period Cost
Materials OH
1. P 50 000
2. 20 000
3. P 10 000
4. P 2 500
5. P 15 000
6. 5 000
7. 1 200
8. 28 000
9. 2 800
10. 8 500
11. 3 500
12. 9 000
13. 800
14. 2 400
15. Other Category
16. Other Category
17. Other Category
18. 5 000
19. 1 500
20. 7 500
Total P 103 000 P 15 000 P 37 500 P 17 200

Test Material 1-2 Test Material 1-3 Test Material 1-4

1. True 11. False 1. Direct Material 11. Factory Overhead 1. P2
2. True 12. True 2. Direct Material 12. Factory Overhead 2. P19171.84
3. False 13. False 3. Factory Overhead 13. Factory Overhead 3. P3432000
4. False 14. True 4. Period Costs 14. Factory Overhead 4. P60000
5. False 15. True 5. Direct Labor 15. Period Costs 5. P9000
6. True 16. False 6. Period Costs 6. P12000
7. False 17. False 7. Period Costs 7. P215000
8. False 18. False 8. Direct Material 8. P475000
9. False 19. True 9. Factory Overhead 9. P3110000
10. False 20. False 10. Period Costs 10. P3450000

Test Material 1-5 Test Material 1-6

11. P 930000 1. C 11. A 1. C 11. B 21. B
12. P 127000 2. D 12. D 2. A 12. C 22. C
13. P 4500 3. D 13. C 3. B 13. A 23. D
14. P 88500 4. C 14. C 4. B 14. B 24. C
15 P 742500 5. A 15. B 5. C 15. A
16. P 1049000 6. A 16. D 6. B 16. C
 17. P 1108500 7. B 17. B 7. D 17. B
18. P 156200 8. B 18. B 8. B 18. B
19. P 41700 9. C 19. A 9. B 19 B
20. P 3432000 10. A 20. C 10.A 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 AD SE
Wages of company officials other the plant
1 supervisor.

2 Wages of raw material inventory clerk.

3 Wages of finished goods inventory clerk.

4 Wages of ironworker in a construction company.

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

10 Gas and oil used by the company president.

11 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.

15 Cloth used by a ready to wear factory.

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

20 Cost of dishes broken by restaurant servers.

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 Period
Cost Cost

1 Depreciation of plant and machineries.

Depreciation of sports equipment used by sports and fitness
2 center.

3 Depreciation of delivery equipment of trading companies.

4 Depreciation of service vehicle used by sales person.

5 Depreciation of office equipments.

6 Paper and toner used for office copier machine.

7 Paper used by printing company.

8 Paper and plastic bags used by supermarkets.

9 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.

Cost of continuing education of a resident physician in a
13 hospital.
Transportation expenses of a resident doctor in attending
14 seminar abroad.
Costs of goods served to the visitors of the company
15 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
21 company.
Cost of newspaper ads to the announcement of new office
22 location.
Salaries and compensation and other benefits paid to Human
23 Resource Manager.
Salaries and compensations and other benefits paid to
24 workers of a factory.
Maintenance costs for the family vehicle of the company
25 executive officer.

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.

Machine Cost Miles Traveled

Highest 18750 30000
Lowest -16500 12000
Difference 2250 18000

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

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

Highest Level 30000 * 0.125 = 3750
Lowest Level 12000 * 0.125 = 1500
 4. Determining Fixed Cost at each level of activity
Highest Level 18750 - 3750 = 15000
Lowest Level 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 P 80000

Add: Purchases 240000
Raw Materials Available P 320000
Less: RM inventory, July 31
(80000+240000-180000) -140000
Indirect Material -12000
Raw Materials P 168000
Direct Labor 120000
Manufacturing Overhead 64820
Total Manufacturing Cost P 352820

b. 1. RM inventory, July 1 P 80000

Add: Purchases 240000
Materials Used -180000
RM inventory, July 31 P 140000

2. WIP, July 1 P 100000

Direct Material 168000
Direct Labor 120000
Manufacturing Overhead 64820
Total Cost of Work put into Process P 452820
Multiply by 25%
WIP, July 31 P 113205

3. Cost of Goods Manufactured P 339615

Multiply by 25%
Finished Goods P 84904

c. Total Cost of Work put into Process P 452820

Multiply by 75%
Cost of Goods Manufactured P 339615

d. Finished Goods, July 1 P 60000

CGM 254711
(339615*75%)
Cost of Goods P 314711
Sold

e. (Journal Entries)
f.
Bubbles Manufacturing Company
Statement of Cost of Goods Sold
July 31, 2012
Raw Materials Used:
RM iventory, July 1 P 80000
Add: Purchases 240000
Raw Materials P 320000
Less: Inventory, July 31 P 140000
Indirect Materials Used 12000 152000 P 168000
Direct Labor 120000
Manufacturing Overhead
Indirect Materials Used P 12000
Indirect Labor 30000
Depreciation 12000
Insurance 4320
others 6500 64820
Total Manufacturing Costs P 352820
Add: Work in Process, July 1 100000
Total Cost of work put into Process P 452820
Less: Work in Process, July 31 -113205
Cost of Goods Manufactured P 339615
Add: Finished Goods, July 1 60000
Goods Available for sale P 399615
Less: Finished Goods, July 31 84904
Cost of Goods Sold P 314711

EXERCISE 1-5

a.) Direct Materials Used P 41 500

Direct Labor 15 000
Manufacturing Overhead 30 000
Total Manufacturing Cost P 86 500

b.) Total Manufacturing Cost P 86 500

Add: Work in Process, Beginning 5 000
Total Cost of Goods placed into process P 91 500
 Less: Cost of Goods Manufactured (79 000)
Work in Process, Ending Inventory P 12 500

c.) Cost of Goods Available for Sale P 86 500

Less: Cost of Goods Manufactured (79 000)
Finished Goods, Beginning P 7 500

d.) Cost of Goods Available for Sale P 86 500

Less: Finished Goods, Ending Inventory (6 000)
Cost of Goods Sold P 80 500

e.) Sales P 112 500

Less: Sales Discount (7 500)
Net Sales P 105 000
Less: Cost of Goods Sold 80 500
Gross Profit P 24 500

f.) Gross Profit P 24 500

Less: Operating Expenses (13 500)
Net Income P 11 000

g.) Total Manufacturing Cost P 100 000

Less: Direct Labor (20 000)
Manufacturing Overhead (25 000)
Direct Materials Used P 55 000

h.) Cost of Goods Manufactured P 105 000

Add: Work in Process, Ending Inventory 10 000
Total Cost of Goods placed Into process P 115 000
Less: Total Manufacturing Cost (100 000)
Work in Process, Beginning P 15 000

i.) Gross Profit P 30 000

Add: Cost of Goods Sold 112 000
Sales Discount 6 000
Sales P 148 500

j.) Cost of Goods Manufactured P 105 000

 Finished Goods, Beginning 20 000
Cost of Goods Available for Sale P 125 000

k.) Cost of Goods Available for Sale P 125 000

Less: Finished Goods, Ending Inventory 12 500
Cost of Goods Sold P 112 500

l.) Gross Profit P 30 000

Less: Operating Expenses (16 000)
Net Income P 14 000

EXERCISE 1-6

a.) Direct Materials Issued to Production P 480 000

Direct Labor (150 000 x 80%) 120 000
Total Prime Cost for the Period P 600 000

b.) Indirect Materials Issued P 4 500

Indirect Labor (150 000 x 20%) 30 000
Depreciation of Sewing and Comp. equipment 8 000
Utilities Paid 22 000
Factory Insurance Expired 7 500
Factory Rent (Net of 10 000 deposit & 5000 adv. rental) 60 000
Total Manufacturing Overhead P 132 000
Add: Direct Labor (50 000 x 80%) 120 000
Total Conversion Cost for the Period P 252 000

c.) Direct Materials Issued to Production P 480 000

Direct Labor (150 000 x 80%) 120 000
Manufacturing Overhead 132 000
Total Manufacturing Cost P 732 000
Less: Work in Process, Ending Inventory (50 000)
Cost of Goods Manufactured for the year P 682 000

d.) Cost of Goods Manufactured for the year P 682 000

Multiply by: Percentage of units sold 80%
Cost of Goods Sold P 545 600
Multiply by: Percentage of Gross profit 35%
Gross Profit for the Period P 190 960
EXERCISE 1-7

Item Number Direct Materials Direct Labor Manufacturing Period Cost

OH
21. P 50 000
22. 20 000
23. P 10 000
24. P 2 500
25. P 15 000
26. 5 000
27. 1 200
28. 28 000
29. 2 800
30. 8 500
31. 3 500
32. 9 000
33. 800
34. 2 400
35. Other Category
36. Other Category
37. Other Category
38. 5 000
39. 1 500
40. 7 500
Total P 103 000 P 15 000 P 37 500 P 17 200

Test Material 4
1. Machine hours Power costs
Highest 1200 14400
Lowest 400 12800
Difference 800 1600

VC/unit = 1600/800 = P 2

2. Hrs. worked Utility costs

Highest 3360 21440
Lowest 2600 18060
Difference 760 3380

VC/unit = 3380/760
= P4.447368421

Fixed cost:
 (highest) = 3360 x 4.447368421
= P 14943.16

(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 P 768000

Cost of goods manufactured 2720000
Increase in finished goods (56000)
Total sales P3432000

4. Cost of fabric used in dresses P 60000

5. Wages of dressmakers P 5000

Wages of dress designers 4000
Direct labor P 9000

6. Wages of the maintenance employee P 2000

Cost of electricity in the shop 3500
Cost of space rental 6500

Overhead P12000

7. Office depreciation P28000

Freight costs for goods delivered to customers 12000
Janitors wages for cleaning the office 10000
Total selling, general & administrative expenses 165000
Period costs P215000

8. Materials P264000
Direct labor 143000
Factory depreciation 50000
Freight costs for materials purchased 8000
 Janitors wages for cleaning the production area 10000
Product costs P475000

9. Direct material [1640000-(1640000x10%)+540000-570000] P1446000

Direct labor 840000
MOH (164000+180000+360000+120000) 824000

Total factory costs P3110000

10. Total factory costs P3110000

Work in process-beg. 600000
Work in process-end. (440000)
Cost of goods manufactured P3270000
Finished goods-beg. 580000
Finished goods-end. (400000)
Cost of goods sold P34500000

11. Gross Profit [(3450000/75%) x 25%] P1150000

Office salaries (140000)
Sales salaries ( 80000)
Net Income P 930000

12. Total factory costs (P12500+45000+90000) (P 147500)

Cost of goods manufactured 237000
WIP, end. 37500
WIP, beg. P 127000
13. Cost of goods available for sale P 259500
Goods produced (237000)
FG, end ( 18000)
Increase in FG P 4500

14. Sales (337500-7500) P 330000

Cost of goods available for sale (259500)
FG, end 18000
Gross Profit P 88500

15. Gross Profit P150000

Sales Discount 30000
Cost of goods sold 562500
Sales P742500

16. Direct labor P 350000

Direct materials 460000
 MOH (110000+50000+31000+8000+5000) 239000
Total factory costs P1049000

17. Total factory costs P1049000

WIP, beg. 220000
WIP, end. (160500)
Cost of goods manufactured P1108500

18. Total Factory costs (P62400 +32000+ 64000) P 158400

WIP, beg. 14700
WIP, end (16900)
Cost of goods manufactured P 156200

19. Sales P 200000

Cost of goods sold (156200 +12600 -10500) (158300)
Gross Profit P 41700

20. Same answer and solution in number 3.

Test Material 5

1. Direct Materials (174000-132000+1500000) P 1542000

Direct labor [(21000x45) + (1000x45)] 990000
Prime costs P 2532000 c.

2. Direct labor (21000x45) P 945000

MOH [(300000 +175000 + (1.5 x 45)] 542500
Conversion costs P 1487500 d.

3. d.
Materials (3200000-180000) P 3020000
Labor [6900000+(2040000-320000)-2040000=6580000]
[6580000+(800000 x 90%)-800000=6500000-3020000 / 160%] P 1275000
Overhead (2175000 x 60%) P1305000

4. Prime Costs P 6750000

Direct labor (4500000/150%) (3000000)
Decrease in raw materials ( 250000)
Raw material purchases P 3500000 c.

5. Direct material (4400000+9000000-2800000-850000) P 9750000

Conversion costs [6500000+1250000+560000+(1200000x60%)
+(600000x60%)+(1500000x60%)+850000] 11400000
WIP, beg. 3000000
WIP, end. (2400000)
Cost of goods manufactured P21490000 a.
6. Cost of goods manufactured P 21490000
FG, beg. 2400000
FG, end. (2950000)
Cost of goods sold P 20940000
Divided by: 75 %
Total sales 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 %) P 200000

Gross profit (25000+25000) ( 50000)
Cost of goods sold P150000 b.

9. Beginning:
Materials (50000+30000) P 80000
Labor (80000+60000) 140000
OH (120000+90000) 210000
Cost added:
Materials (80000+50000+75000) P 205000
Labor (100000+80000+110000) 290000
OH (290000 x (120000/80000) 435000
Finished goods, end P1010000 c.

10. Overhead applied P 435000

Overhead actual (420000)
Over applied P 15000 a.

11. Total manufacturing cost:

P 975000-600000+55000-40000+15000-35000 = P 370000 a.

12. Total raw materials purchased:

P 370000-(520000-400000)-(120000/75%)+10000-5000 = 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%) P 60203.6

MOH 30101.8
CC P 90305.40 / 50% = P180610.80

P 180610.80 + 590 = P 181200.80 b.

16. RM available for used P 47500

RM issued to production (30000)
RM, beg. (47500-37500) (10000)
Increase in RM P 7500 d.

17. b.
Direct material (P 15000+ 33000 19000 1000) P 28000
MC (P 12000+30000-40000) P 110000
FG, June 30 (P 190000-140000) P 50000
18. Materials (P 380000-20000) P 360000
Direct labor (P 420000-40000) 380000
Prime costs P740000 b.

19. MOH (P 380000 / 20 =P 19000 x 28) P 532000

Prime costs 740000
WIP, beg. 20000
Cost of goods manufactured 940000
WIP, end P 352000 a.

20. Same solution and answer in number 7.