COST ESTIMATION

1. In describing the cost formula equation, Y = a + bX, which of the following is correct:
A) “Y” is the independent variable.
B) “a” is the variable cost per unit.
C) “a” and “b” are valid for all levels of activity.
D) in the high-low method, “b” equals the change in cost divided by the change in
activity.

2. Your boss would like you to estimate the fixed and variable components of a particular cost Actual data
for this cost over four recent periods appear below.
Activity Cost
Period 1 .................. 25 $363
Period 2 .................. 22 $345
Period 3 .................. 23 $348
Period 4 .................. 20 $322
Using the least-squares regression method, what is the cost formula for this cost?
A) Y = $164.50 + $8.00X
B) Y = $0.00 + $15.31X
C) Y = $160.36 + $8.18X
D) Y = $168.08 + $5.27X

Corrections: Used the HIGH - LOW METHOD instead of least square

b= ($363-322) ÷ (25 -20) a= $363 – ($8.20 * 25)
b= 41 ÷ 5 a= $363 – 205
b= $ 8.20 a= $158
Y = $158 + $8.20X

Items 3 – 4:
The management of Casablanca Manufacturing Corporation believes that machine-hours is an
appropriate measure of activity for overhead cost Shown below are machine-hours and total
overhead costs for the past six months:
Machine Hours Overhead Cost
Jan 150,000 $339,000
Feb 140,000 $328,000
Mar 160,000 $350,000
Apr 130,000 $319,500
May 170,000 $362,500
Jun 200,000 $400,000
Assume that the relevant range includes all of the activity levels mentioned in this problem.

3. If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total
overhead cost be using the high-low method?
A) $212,750
B) $359,750
C) $382,750
D) $381,700

Corrections: Using the HIGH - LOW METHOD

b= ($400,000 – 319,500) ÷ (200,000 -130,000) a= $400,000 – ($1.15 * 200,000)
b= 80,500 ÷ 70,000 a= $400,000 – 230,000
b= $ 1.15 a= $170,000
Total costs (@185,000 MHs) = $170,000 + ($1.15 * 185,000)
Total costs (@185,000 MHs) = $170,000 + 212,750
Total costs (@185,000 MHs) = $382,750

4. What is Casablanca's independent variable?

A) the year
B) the machine hours
C) the total overhead cost
D) the relevant range

JOB – ORDER COSTING

1. In job order costing, the basic document to accumulate the cost of each order is the –
a. Invoice c. Requisition sheet
b. Purchase order d. Job cost sheet

2. What is the best cost accumulation procedure to use when many batches, each differing as to product specification
are produced?
a. Job order c. Process
b. By-products d. Standard

3. In a job order cost system, direct labor costs usually are recorded initially as an increase in
a. Factory overhead applied c. Work in process
b. Factory overhead control d. Finished goods

4. Over-applied overhead will always result when predetermined overhead rate is employed and
a. Production is greater that defined capacity
b. Defined capacity is less than normal capacity
c. Actual overhead cost is less than expected
d. Overhead incurred is less than overhead applied

5. The source documents for assigning costs to work in process in a job order cost system are
a. Invoices, time tickets and the predetermined overhead rate
b. Material requisition slips, time tickets and the predetermined overhead rate
c. Material requisition slips, payroll register and the predetermined overhead rate
d. Material requisition slips, time tickets and the actual overhead cost

6. Kiss Corporation uses a job order cost system and has two production department, M and A. budgeted
manufacturing costs for the year are:
Dept. M Dept. A
Direct materials P 700,000 P 100,000
Direct labor 200,000 800,000
Manufacturing overhead 600,000 400,000

The actual materials and labor costs charged to Job no. 432 during the year were as follows:
Direct materials P 25,000
Direct labor: Dept. M P 8,000
Dept. A 12,000 20,000
 Kiss applies manufacturing overhead to production orders on the basis of direct labor cost using separate
departmental rates predetermined at the beginning of the year based on the annual budget. The total annual
manufacturing costs associated with Job no. 432 should be:
a. P 50,000 b. P 55,000 c. P 65,000 d. P 75,000

Direct materials P 25,000

Direct labor 20,000
Factory overhead 30,000
Total manufacturing costs P 75,000
Note:
FOH predetermined rate
Dept. M = P600,000 ÷ P200,000 = 300%
Dept. A = P400,000 ÷ P800,000 = 50%

FOH applied:
Dept. M = P8,000 * 300% = P24,000
Dept. A = P12,000 *50% = P6,000

7. Mc Clean Co., uses job order cost system. Its work in process account for April, 20D shows the following:
WORK IN PROCESS
Balances, beg. P 25,000 Finished Goods P 125,450
Direct Materials 50,000
Direct Labor 40,000
Factory Overhead ?

Factory overhead is applied to production at 75% of direct labor cost. The work in process as of April 30 represents
the cost of Job no. 123 which has been charged with direct labor cost of P 3,000 and Job no. 122 which has been
charged with applied overhead of P 2,400. Factory overhead incurred amounted to P 31,000.
The cost of direct materials charged to Job order nos. 123 & 122 totaled:
a. P 4,200 b. P 4,500 c. P 7,500 d. P 8,700

WIP, beg bal. P 25,000

Direct materials 50,000
Direct labor 40,000
Factory overhead (P40,000*75%) 30,000
Finished goods (125,450)
WIP, ending balance P 19,550

The WIP is compose of JOB 123 & 122:

WIP, ending bal. P 19,550

Direct labor – Job 123 (3,000)
Direct labor – Job 122
(3,200)
(2,400 ÷ 75%)
FOH – Job 123
(2,250)
(P3,000*75%)
FOH – Job 122 (2,400)
Direct materials P 8,700
8. Department rates in Kamagong Manufacturing Co. are as follows:
Department A: P 5 per labor hour
Department B: 20% of direct labor cost
Department C: P 8 based on 20,000 machine hours
Normal capacities are 30,000 labor hours (Dept. A); P 400,000 labor cost (Dept B.) and 20,000 machine hours
(Dept. C). An analysis of the estimated expenses of each producing department shows:
Dept. A Dept. B Dept. C
Fixed Expenses P 30,000 P 25,000 P 20,000

Based on the data given, how much be the total production cost of Job No. 007 on which following data are given
JOB NO. 007
Dept. A Dept. B Dept. C
Direct Materials P 9,000 P 8,000 P 7,500
Direct Labor 2,500 2,800 2,900
Direct labor Hours 110 130 145
Machine Hours 10 20 70

a. P 34,370 b. P 32,700 c. P 76,065 d. answer not given

JOB NO. 007

Dept. A
Direct materials P 9,000
Direct labor 2,500
Factory overhead (P5 * 110) 550
Total P 12,050

Dept. B
Direct materials P 8,000
Direct labor 2,800
Factory overhead (P2,800*20%) 560
Total 11,360

Dept. C
Direct materials P 7,500
Direct labor 2,900
Factory overhead (P8 * 70) 560
Total 10,960

Total production costs P34,370

9. Farber Corporation uses a job-order cost system. The information below is from the financial records of the
company for last year:
Total manufacturing costs ......................... P 2,500,000
Cost of goods manufactured ...................... P 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. The Work in Process inventory at December 31 was:
a. P 300,000 b. P 225,000 c. P 100,000 d. P 75,000
 Suggested solution is to used algebraic expression.
Let X = WIP, end balance (unknown)

COGM = TMC + WIP, beg. – WIP, end

P2,425,000 = P2,500,000 + 75%X – X
X – 75%X = P2,500,000 – 2,425,000
25% X = P75,000
X = P75,000 ÷ 25%
X = P300,000

Items 10 – 11:
During March, Marc Company incurred the following costs on Job 209 for the manufacture of 200 motors:
Original cost accumulation:
Direct materials P660
Direct Labor 800
Factory overhead (150% of DLC) 1,200
P2,660

Direct costs of reworking 10 units:

Direct materials P 100
Direct Labor 160
P 260

Method A – The rework cost were attributable to the exacting specifications of Job 209, and the full rework costs were
charged to this specific job.
Method B – The defective units fall within the normal range and the rework is not related to a specific job, or the rework
is common to all the jobs.

10. The cost per finished unit of Job 209 using method A is:
a. P15.60 b. P15.80 c. P13.50 d. P13.30

Direct materials P 660

Direct labor 800
Factory overhead (P40,000*75%) 1,200
Rework cost:
500
100 + 160 + (160*150%)
Total costs P 3,160
÷ total units produced 200 motors
Unit cost P 15.80

11. The cost per finished unit of Job 209 using method B is:
a. P13.30 b. P13.60 c. P15.60 d. P15.80

Direct materials P 660

Direct labor 800
Factory overhead (P40,000*75%) 1,200
Total costs P 2,660
÷ total units produced 200 motors
Unit cost P 13.30
Items 12 – 13:
Hull Machine Shop is a manufacturer of aircraft parts. Five aircraft parts out of job lot of 50 aircraft parts are spoiled.
Costs assigned prior to the inspection point are P2,000 per part. The current disposal price of the spoiled parts is
estimated to be P600 per part

12. If the spoilage is normal and attributable to a specific job, the unit cost of the good units is
a. P2,000 b. P600 c. P2,155 d. P1,400
Production costs per part P 2,000
Absorption of Loss on spoilage per part
155
[(P2,000 – 600) * 5] ÷ 45
Total costs per part P 2,155

13. If the spoilage is normal common to all jobs, the unit cost of the good units is
a. P2,000 b. P600 c. P2,155 d. P1,400
The units cost is equal to the production cost per part because the said cost already includes allowances for
spoilage loss.

PROCESS COSTING

1. The FIFO process costing method will produce the same cost of goods manufactured as the average method if
a. the goods produced are homogenous
b. There is no beginning inventory
c. there are no lost units
d. Beginning and ending inventories are equal

2. In a production cost report using process costing, transferred in costs are similar to
a. Material added at the beginning of the process
b. Conversion costs added during the process
c. Cost transferred to the next process
d. Cost included in beginning inventory

3. In a process costing system using the weighted average method, cost per equivalent unit for a given cost component
is found by dividing which of the following by EUP?
a. only current period cost
b. current period cost plus the cost of beginning inventory
c. current period cost less the cost of beginning inventory
d. current period cost plus the cost of ending inventory

4. In a FIFO process costing system, which of the following are assumed to be completed first in the current period?
a. units started this period c. units transferred out
b. units started last period d. units still in process

5. Process costing is used in companies that

a. engage in road and bridge construction.
b. produce sailboats made to customer specifications.
c. produce bricks for sale to the public.
d. construct houses according to customer plans.
 Item 6 – 7:
The cost department of Nova Corporation operates a process cost system using FIFO method. Production records showed
the following data for one of the three production departments:

Production unfinished at the end of the previous month (50%) 10,000 kls.
Production received from previous department 100,000 "
Production finished and sent to next department 81,840 "
Production finished and remaining in the department 4,160 "
Production unfinished at the end of the current month 24,000 "
In this department additional material is added to the work received from the preceding department. Three distinctly
different types of materials are used at three separate stages of production in this department:

Material A is added at the start of the process.

Material B is added when the process is one-forth completed.
Material C is added when the process is three-forth completed.
Labor and factory overhead are incurred at a uniform rate throughout the manufacturing process in this department.
Examination of the unfinished work discloses that:

1/4 was 7/8 completed; 1/4 was 1/6 completed; 1/2 was 1/2 completed

6. The equivalent production figure for Material A, B, and C would be

Material A Material B Material C
a. 80,000 95,000 85,000
b. 90,000 92,000 80,000
c. 100,000 94,000 92,000
d. 85,000 84,000 78,000

7. The equivalent production figure for labor and factory overhead would be:
a. 93,250 b. 88,250 c. 85,250 d. 90,350
Material A Material B Material C Conversion Cost
Added at the start of the Added when the process is added when the process is
process ¼ completed. ¾ completed
% of Equivalent % of Equivalent % of Equivalent % of Equivalent
completion units completion units completion units completion units
WIP, beg. 10,000 - - - - 100% 10,000 50% 5,000
Completed 71,840 100% 71,840 100% 71,840 100% 71,840 100% 71,840
&
Transferred
Completed 4,160 100% 4,160 100% 4,160 100% 4,160 100% 4,160
& remained
WIP, end
¼ was 7/8 6,000 100% 6,000 100% 6,000 100% 6,000 7/8 or 5,250
completed 87.5%
¼ was 1/6 6,000 100% 6,000 - - - - 1/6 or 1,000
completed 16.67%
½ was ½ 12,000 100% 12,000 100% 12,000 - - ½ or 50% 6,000
completed
110,000 100,000 94,000 92,000 93,250
Note: For the WIP end with 24,000 units it was divided into three groups as indicated in the problem based on
the examination of the unfinished work.
Items 8 – 9:
Canada Pulp Company processes wood pulp for manufacturing various paper products. The company employs a process
costing system for its manufacturing operations. All direct materials are added at the beginning of the process and
conversion costs are incurred uniformly throughout the process. This is the company’s production quantity schedule for
May:
Percent Completed
Tons of Pulp Materials Conversion Cost
Work in process Inventory, May 1 1,500 100% 30%
Units started during May 5,000
Total units to account for 6,500

Units from beg. WIP, which were completed

And transferred out during May 1,500
Units started and completed during May 4,000
Work in process inventory, May 31 1,000 100% 60%
Total units accounted for 6,500

And the following costs data were available:

Work in process inventory, May 1:
Direct Materials P 20,750
Conversion 23,470
Cost incurred during May:
Direct Materials P 80,000
Conversion 58,880

8. Using FIFO method, the equivalents units of direct materials during May is
a. 6,500 b. 5,500 c. 6,000 d. 5,000

Direct Materials
% of Equivalent
completion units
Units from beg. WIP,
which were completed
1,500 - -
and transferred out
during May
Units started and
4,000 100% 4,000
completed during May
Work in process
1,000 100% 1,000
inventory, May 31
6,500 5,000

9. Using the weighted-average method, the equivalent unit for direct materials during May is
a. 5,500 b. 6,000 c. 6,500 d. 5,000

Direct Materials
% of Equivalent
completion units
Units completed during
5,500 100% 5,500
May
Work in process
1,000 100% 1,000
inventory, May 31
6,500 6,500
10. Rey Company manufactures Product X in a two-stage production cycle in Department A and B. Materials are added
at the beginning of the process in Department B. Conversion costs for Department B were 50% complete as to the
6,000 units in BWIP and 75% complete as to the 8,000 units in EWIP, 12,000 units were completed and transferred
out to Department B during February. An analysis of the costs relating to WIP and production activity in Department
B for February follows:

Transferred in costs Material costs Conversion costs

WIP, February 1 P12,000 P 2,500 P 1,000
Cost added 29,000 5,000 5,000

The total cost per unit transferred out for February of Product X, rounded to the nearest peso.
FIFO Average FIFO Average
a. P2.77 P 2.77 c. P2.77 P2.78
b. P2.78 P 2.77 d. P 2.78 P2.78

Using FIFO method:

Direct Materials Conversion Cost
% of Equivalent Equivalent
% of completion
completion units units
Units from beg. WIP,
which were completed 6,000 - - 50% 3,000
and transferred out
Units started and
6,000 100% 6,000 100% 6,000
completed
Work in process
8,000 100% 8,000 75% 6,000
inventory,
20,000 14,000 15,000

Transferred in costs Material costs Conversion costs Total costs

Current costs added 29,000 5,000 5,000 P 39,000
÷ EUP ÷ 14,000 ÷ 14,000 ÷ 15,000
Cost per unit 2.0714 0.35714 0.33333 P2.7619

Cost of completed & transferred out:

WIP, beg: (P12,000 + 2,500 +1,000) P 15,500.00
(3,000 * 0.333) 1,000.00
Current costs: (6,000 units * P2.7619) 16, 301.40
Total cost P 32,801.40
÷ completed units ÷ 12,000 units
Unit cost P 2.73345

For this item kindly disregard the choices.

Using WEIGHTED AVERAGE method:
Direct Materials Conversion Cost
% of Equivalent Equivalent
% of completion
completion units units
Units started and
12,000 100% 12,000 100% 12,000
completed
Work in process
8,000 100% 8,000 75% 6,000
inventory,
20,000 20,000 18,000

Transferred in costs Material costs Conversion costs Total costs

WIP, Beg P 12,000 2,500 1,000 P 15,500
Current costs added 29,000 5,000 5,000 39,000
Total 41,000 7,500 6,000 54,500
÷ EUP ÷ 20,000 ÷ 20,000 ÷ 18,000
Cost per unit 2.05 0.375 0.33333 P2.758

For this item kindly disregard the choices.

11. Basic Chemical Industries, Inc. Produces a product through a continuous process in different departments. Each
department has an independent cost accountant who is tasked with cumulating costs and the preparation of reports
for the department assigned to him. You have assigned as a cost accountant for Department A. Production data of
Department A for the month of September, 2010 were as follows:
Work-in-process, September 1 14,000 kg. (70% complete)
Started in process 70,000 kg.
Work-in-process, September 30 12,000 kg. (60% complete)
Lost units (normal) at the end of the process 2,000 kg.

In this department costs are applied as follows: Materials, added at the start, labor and overhead were evenly
distributed. Department cost incurred in September were: Materials, P56,000; Labor, P17,350; overhead, P13,880; work-
in-process cost, beg., P8,000. Compute the current total units for materials, labor and overhead.
a. P1.23 b. P1.04 c. P1.17 d. P1.25

Direct Materials Conversion Cost

% of Equivalent Equivalent
% of completion
completion units units
Units from beg. WIP,
which were completed 14,000 - - 30% 4,200
and transferred out
Units started and
56,000 100% 56,000 100% 56,000
completed
Work in process
12,000 100% 12,000 60% 7,200
inventory,
Normal lost 2,000 100% 2,000 100% 2,000
84,000 70,000 69,400
 Material costs Conversion costs Total
Current costs added P56,000 P31,230
÷ EUP ÷ 70,000 ÷ 69,400
Cost per unit P 0.80 P 0.45 P1.25