UNIVERSITY OF SAN JOSE-RECOLETOS

SCHOOL OF BUSINESS AND MANAGEMENT

Accountancy and Finance Department

ILLUSTRATIVE PROBLEMS MS. SARAH M. BALISACAN, CPA

Problem 1 (Cost Classification)

Cost Description Cost Object

1. Wages of carpenters on a home building site A particular home
2. Cost of wiring used in making a personal computer A particular personal computer
3. Manager’s salary at a hotel run by a chain of hotels A particular hotel guest
4. Cost of travel and entertainment in the company’s Sales personnel
Sales Department
5. Cost of aluminum mast installed in a yacht at a A particular yacht
yacht manufacturer
6. Monthly lease cost of X-ray equipment at a The Radiology (X-Ray) Department
hospital
7. Cost of screws used to secure wood trim in a yacht A particular yacht
at a yacht manufacturer
8. Cost of electronic navigation system installed in a A particular yacht
yacht at a yacht manufacturer
9. Cost of a replacement battery installed in a car at The auto repair shop
the auto repair shop of an automobile dealer
10. Cost of a measles vaccine administered at an A particular patient
outpatient clinic at a hospital

Required: For each cost item listed above, indicate whether the cost is direct or indirect with respect to
the cost object listed next to it.
Problem 2 (Cost Classification)

Consider the graphs that follow (the horizontal axis represents activity; the vertical axis represents the
total amount in pesos.)

Required:
For items A-I that follow, choose the graph that best represents the cost behavior pattern described
below. Note: Graphs can be used more than once.

A. Straight-line depreciation on machinery

B. The cost of chartering a private airplane. The cost is P800 per hour for the first 6 hours of a
flight; it then drops to P600 per hour.
C. The wages of table service personnel in a restaurant. The employees are part-time workers who
can be called upon for as little as 4 hours at a time.
D. Weekly wages of store clerks who work 40 hours each week. One clerk is hired for every 125
sales made during the month.
E. The cost of tires used in the production of trucks.
F. Outbound shipping charges that increase at a decreasing rate as sales rise because the firm can
use more efficient modes of transportation (e.g., full trailer loads, full rail cars, etc.) Gradually,
however, at high levels of sales, freight costs start to increase at an increasing rate, which
reflects more transactions made to customers in far-away locations.
G. Equipment leasing costs that are computed at P2 per machine hour worked. The company pays
a maximum of P120,000 per month.
H. The monthly cost of a franchise fee for a fast-food restaurant. The franchisee must pay P20,000
plus 5% of gross peso sales.
I. The cost of electricity during peak demand periods, which is based on the following schedule:
Up to 20,000 kilowatt hours (KWH): P4,000
Above 20,000 kilowatt hours: P4,000 + P0.02 per KWH
Problem 3 (Manufacturing Costs Computation)

Steyler Sporting Good Company manufactured 100,000 units in 2019 and reported the following costs:

Sandpaper P32,000 Leasing costs – plant P384,000

Materials handling 320,000 Depreciation – equipment 224,000
Coolants and lubricants 22,400 Property taxes – equipment 32,000
Indirect manufacturing 275,200 Fire insurance – equipment 16,000
labor
Direct manufacturing labor 2,176,000 Direct material purchases 3,136,000
Direct materials, 1/1/19 384,000 Direct materials, 12/31/19 275,200
Finished goods, 1/1/19 672,000 Sales revenue 12,800,000
Finished goods, 12/31/19 1,280,000 Sales commissions 640,000
Work-in-process, 1/1/19 96,000 Sales salaries 576,000
Work-in-process, 12/31/19 64,000 Advertising costs 480,000
Administration costs 800,000

Required:
a. What is the amount of direct materials used during 2019?
b. What manufacturing costs were added to WIP during 2019?
c. What is the cost of goods manufactured for 2019?
d. What is the cost of goods sold for 2019?
Problem 4 (Job Order Costing)

Vanda Inc. produces customized vans in a job order shop. On November 1, the following balances
appear in the inventory records.

Materials P207,500
Work in Process 770,000
Finished Goods 447,500

The amount in Finished Goods represents P252,500 recorded for Van 1075 and P195,000 recorded for
Van 1077. The work in process account represents the three vans in process, as follows:

Van 1079 Van 1080 Van 1081

Direct Materials P187,500 P125,000 P62,500
Direct Labor 150,000 100,000 50,000
Factory Overhead 65,000 17,500 12,500

The following transactions occurred during November:

a. Purchased materials on account; P200,000.
b. Requisitioned P150,000 of materials from inventory: P37,500 applied to Van 1080, P62,500 to
Van 1081, and P40,000 to Van 1082, a new order; the balance was for indirect materials.
c. Recorded the liability for the payroll and the labor cost distribution in a single entry: total
payroll, P521,875. Of the payroll cost, 10% applied to Van 1079, 20% to Van 1080, 35% to Van
1081, 30% to Van 1082, and the remainder to indirect labor.
d. Paid the payroll.
e. Applied factory overhead at the rate of 150% of direct labor cost.
f. Completed Vans 1079 and 1080.
g. Sold Van 1075, 1077 and 1080 at 50% over manufacturing costs.

Required: Prepare general journal entries to record these transactions.