Exercise 1-1(True or False)

Instruction: On the blank space provided for each number shown below, write R if the state

W 1. The balance of the Finished Goods Inventory account includes all manufacturing costs i

R 2. The main features of service businesses are that they have little or no inventory and tha

W 3. Knowing the cost of providing services is not important in contract bidding as well as in d

R 4. The basic document used to accumulate costs for a service business using job order co

R 5. The cost accounting system must be designed to determine total production costs as we

R 6. One of the most important aspects of cost accounting is the preparation of reports that m

R 7. The payroll-related costs of factory workers such as sick leave with pay, vacation pay, r
are usually treated as indirect labor costs.

R 8. Job Order Cost Sheet is the subsidiary record for the controlling account Work in Proces

R 9. Opportunity cost is the value of benefit sacrified in favor of an alternative course of actio

R 10. The plant manager’s salary is not considered an engineered cost because it does not h

W 11. Not all selling and administrative expenses are treated as period costs.

R 12. Period costs are expensed on the income statement in the period in which they are inc

W 13. The costs of operating finished goods warehouse is classified as a selling cost.

W 14. The cost of an advertising campaign dedicated to a specific product is an indirect cost
who oversees numerous products is a direct cost with respect to individual products.

W 15. If Skechers is assigning costs to its various regional and national sales offices, then the

W 16.In 1772, Joshua Wedgwood became the world’s first cost accountant.

R 17. Manufacturers that use a job order cost system are sometimes called job shops.

W 18. Any balance in the factory overhead control account should be carried over to the next
W 19. The Finished Goods account is a controlling account for the subsidiary Finished Goods

R 20. Period costs are used in generating revenue during the current period but are not invol
 below, write R if the statement is true; write W if the statement is false (n x 1)

all manufacturing costs incurred to date for goods in various production stages but not yet completed.

e or no inventory and that labor costs account a large portion of its total costs.

act bidding as well as in deciding what types of services will be offered to the general public.

siness using job order costing is the job order cost sheet.

tal production costs as well as the unit production cost.

eparation of reports that management can use to plan and control operations.

with pay, vacation pay, retirement program contributions, and other fringe benefits

g account Work in Process Inventory.

alternative course of action.

cost because it does not have a direct cost relationship to outputs.

riod in which they are incurred using the usual rules of accrual accounting.

d as a selling cost.

roduct is an indirect cost of that product while the salary of a marketing manager
individual products.

onal sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office.

s called job shops.

e carried over to the next accounting period.

ubsidiary Finished Goods ledger or stock ledger.

nt period but are not involved in the manufacturing process.

completed.

cost of that office.

Exercise 1-3(Computation of Manufacturing Costs)
Analyze the following independent cases:

1. Work in process inventory increased by P11,500. Costs incurred during September were P12,000 for m
and P21,000 for overhead. Compute the cost of goods manufactured for September.

Direct Material Used P 12,000

Direct Labor 63,000
Factory Overhead 21,000
Total Manufacturing Cost 96,000
Less: Work in Process 11,500
Cost of Goods Manufacturing 84,500

2. Costs incurred in June were P15,000 for materials purchased, P40,000 for direct labor, and P50,000 fo
by P4,000. If cost of goods manufactured in June was P99,000 and beginning work in process inve

Solution: ENDING WORK IN PROCESS INVENTORY

June Materials ₱ 15,000.00

Materials Purchased ₱ 4,000.00
Add: Movement in Materials Inventory (Decreased) ₱ 19,000.00
Total Direct Material Used

Direct Labor
Overhead
Total Manufacturing Cost

Add: work in Process, Beginning

Cost of Goods placed into Process
Less: Work in Process, End
TOTAL COST OF GOOD MANUFACTURED

3. The cost of goods sold for November was P156,000, finished goods inventory decreased by P13,000, a
Determine the total manufacturing costs for November.

Sept. Total Manufacturing Cost 152,000.00

Less: Movement in Work in Process Inventory, End (Increase) 9,000.00
Cost of Goods Manufactured
Add: Movement in Finished Goods Inventory, End (Decrease)
 Cost of Good Sold

4. Dwan Company has the following data at the end of November of the current year:
Factory burden in November P 75,254.50
Decrease in Materials Inventory 6,075.00
Decrease in Work in process Inventory 1,475.00
Increase in Finished Goods Inventory 3,301.00
The factory burden is 50% of the direct labor costs and the conversion costs is 50% of the total cost of ma
Determine the cost of goods manufactured for the month.

Direct Material 219,688.50

Add: Movement in Materials Inventory, 6,075.00
End (decreased)

Direct labor 150,509.00

Factory Burden 75,254.50
Total Manufacturing Cost

Add: Movement in Work in Process Inventory, End (decreased)

TOTAL COST OF GOODS MANUFACTURED

Add Cost of Goods Manufactured

Less: Movement in Finished Goods Inventory, End (increased)
COST OF GOOD SOLD
September were P12,000 for materials used, P63,000 for direct labor,
d for September.

or direct labor, and P50,000 for overhead. Materials inventory decreased

beginning work in process inventory was P28,000, compute the ending work in process inventory.

TORY

₱ 19,000.00

₱ 40,000.00
₱ 50,000.00
₱ 109,000.00

₱ 28,000.00
₱ 137,000.00
₱ 38,000.00
₱ 99,000.00

entory decreased by P13,000, and work in process inventory increased by P9,000.

Answer

143,000.00
13,000.00
 156,000.00

rrent year:

s is 50% of the total cost of manufacturing. All materials are purchased FOB shipping point.

225,763.50

451,527.00

1,475.00
453,002.00

453,002.00
3,301.00
449,701.00
Exercise 1-4 (Cost Classification)
REQUIRED: Classify the costs for CT’s Burger Haus December operations in one of the following cate
Direct materials, direct labor, overhead or selling and administrative expenses.

Direct materials 1. Hamburger meat …… P 16,000

Direct materials 2. Lettuce ……………… 3,000
Direct materials 3. Tomatoes ……………… 2,500
Direct materials 4. Buns …………………… 3,000
Overhead 5.Other ingredients ………. 200
Direct labor 6. Cooks’ wages …………. 25,500
Direct labor 7. Servers’ wages………… 20,320
selling and administrative expenses. 8.Supervisor’s salary …… 20,000
selling and administrative expenses. 9. Utilities ………………… P 5,000
Overhead 10. Cooking Equipment … 2,000
selling and administrative expenses. 11. Cash register ………… 500
selling and administrative expenses. 12. Advertising …………… 1,000
Overhead 13. Janitor’s wages ……… . 1,200
Overhead 14. Janitorial supplies…… .. 500
Overhead 15. Rent …………………… 8,000
ns in one of the following categories:
expenses.
Exercise 1-5 (Cost Classification)
For each cost description, identify whether the cost is mainly fixed or variable with respect

Cost Description Possible Measure of Activity

Variable 1. Cost of vaccine used at a clinic Vaccines administered

Fixed 2. Building rent at a taco shop Peso sales

Fixed 3. Salary of production manager at a Medicinal bottles produced

pharmaceutical company

Variable 4. Cost of electricity for production Gallons of water produced

equipment at a water refilling station

Fixed 5. Ferry captain’s salary on a regularly Number of passengers

scheduled passenger ferry

Variable 6. Cost of glue used in furniture Units produced

production

Fixed 7. Janitorial wages at a car assembly Cars produced

plant

Fixed 8. Depreciation on factory building at Cement bags produced

a cement manufacturing firm

Fixed 9. Cost of advertisement at an airline Airline tickets sold

company

Variable 10. Cost of shipping bags of fertilizer Bags shipped

to a customer at a chemical plant
variable with respect to the possible measure of activity listed on the right side.
Complete the schedule of the coffee ship's total costs and cost per cup of coffee.

Cups of Coffee Served and Sold

30,000 40,000 50,000.00

Total Variable Cos PHP 180,000.00 PHP 240,000.00 PHP 300,000.00

Total Fixed Costs PHP 300,000.00 PHP 300,000.00 PHP 300,000.00
Total Costs PHP 480,000.00 PHP 540,000.00 PHP 600,000.00

Cost per cup of coffee:

Variable Cost 6 6 6
Fixed Cost 10 7.5 6

Assuming that the coffee shop can serve and sell 45,000 cups during the month at a selling price of P16 pe
will they be able to operate profitably?

Particulars Amount
Sale (45,000*6) 720,000
- Variable cost (45,000*6) 270,000
Contribution 450,000
- Fixed Cost 300,000
Profit 150,000

How many cups of cofee must be served and sold per month in order to breakeven?

Break-even Point (units) = Fixed Costs / (Selling price per Unit - Variable Cost per Unit)
Break-even Point (PHP) = Fixed Costs / Contribution Margin Ratio

Solution:
Break-even Point (units) = P300,000 / (P16 - P6)
Break-even Point (units) = 30,000 cups of coffee
30,000.00

Answer: You must serve and sell 30,000 cups of coffee in order to Break-even.

………………………………………………………….
Break-even Point (PHP) = P300,000 / 63%
480,000.00

CHECK:
Unit Volume Total

Sales 16 30,000.00 480,000.00

Less: Variable Cos 6 30,000.00 180,000.00
Contribution Margin 300,000.00

Less: Fixed Cost 300,000.00

Net income or loss -

Contribution Margin Ratio

Selling Price 16
Variable Cost per 6
Contribution marg 10 62.50%
nth at a selling price of P16 pe

Sales (45,000 x P16 PHP 720,000.00

Less: Total costs ( PHP 570,000.00
Profit PHP 150,000.00
Answer: YES, it will operate profitably at 45,000 volume with P150,000 p

akeven?

t per Unit)