Colegio de Dagupan

School of Business and Accountancy

Arellano Street, Dagupan City

Cost Accounting
Departmental Quiz (Semi-finals)

1. Statement 1: The human resource department in a manufacturing company would be

considered a service department.
Statement 2: The direct method makes no cost allocations between or among service
departments.
a. True, False c. False, True
b. True, True d. False, False

2. Statement 1: One reason to allocate service department costs to user departments is to

encourage the user departments to monitor their use of the service department costs.
Statement 2: The selection of an allocation base in the direct method is easier than the
selection of an allocation base in the step method.
a. True, False c. False, True
b. True, True d. False, False

3. Statement 1: The step method allocates some, but not all, service department costs to other
service departments.
Statement 2: With the reciprocal method, the total service department costs less the direct
costs of the service department equals the cost allocated to the service department.
a. True, False c. False, True
b. True, True d. False, False

4. Statement 1: One advantage of the step method is that all reciprocal services are
recognized between service departments.
Statement 2: One potential disadvantage of the reciprocal method is it could overstate the
cost of running the organization's service departments.
a. True, False c. False, True
b. True, True d. False, False

5. Statement 1: In deciding whether to outsource a service department or not, the cost of the
service department should be estimated using the step method of allocation.
Statement 2: Joint products are outputs from common inputs and a common production
process.
a. True, False c. False, True
b. True, True d. False, False

6. Statement 1: In a sell-or-process-further decision, the common costs incurred prior to the

spilt-off point are irrelevant.
Statement 2: Since by-products have minor sales value, alternative methods of accounting
for them will not have a material effect on the financial statements.
a. True, False c. False, True
b. True, True d. False, False

7. Statement 1: The physical quantities method allocates joint costs so that each joint product
has the same gross margin as a percentage of sales.
Statement 2: In a sell-or-process-further decision, the additional costs incurred after the
split-off point are irrelevant.
a. True, False c. False, True
b. True, True d. False, False

8. Statement 1: If a company's two joint products can be sold at the split-off point, there is no
reason for allocating the joint costs to the products.
Statement 2: The physical quantities method of allocating joint costs is often used when the
output sales prices are highly volatile.
a. True, False c. False, True
b. True, True d. False, False

9. Statement 1: In general, it is better to use a product's market value at the split-off point than
its estimated net realizable value in allocating joint costs.
Statement 2: The estimated net realizable value at the split-off point is calculated by taking
the sales value after further processing and deducting the additional processing costs.
a. True, False c. False, True
 b. True, True d. False, False

10. Symptoms of an outdated cost system include all of the following except:
a. product costs change because of changes in financial reporting.
b. products that are difficult to produce show little profit.
c. competitors' prices appear unrealistically low.
d. the company has a highly profitable niche all to itself.

11. Which of the following is NOT a sign of poor cost data?

a. Competitors' prices for high-volume products appear much too high.
b. The company seems to have a highly profitable niche all to itself.
c. Customers don't balk at price increases for low-volume products.
d. Competitors' prices for low-volume products appear much too high.

12. Activity-based management (ABM) is

a. a costing system in which multiple overhead cost pools are allocated using bases
that includes one or more non-volume related factors
b. a base used to allocate the cost of a resource to the different activities using it
c. the use of information obtained from ABC to make improvements in the firm
d. a base used to allocate the cost of an activity to products and customers

13. An objective of activity-based management is to

a. Eliminate the majority of centralized activities in an organization.
b. Reduce or eliminate non-value-added activities incurred to make a product or provide
a service.
c. Institute responsibility accounting systems in decentralized organizations.
d. All of the above

14. All of the following are ways that activities can be managed to achieve improvements in a
process, except:
a. activity induction c. activity elimination
b. activity selection d. activity sharing

15. In contrast to a company that uses a single overhead rate, one that uses activity-based
costing
a. will have higher product costs than one using a single overhead rate.
b. cannot compute budget variances.
c. will incur additional costs for recordkeeping.
d. must have a preponderance of fixed overhead costs.

16. Of the following, which is the best reason for using activity-based costing?
a. To keep better track of overhead costs
b. To more accurately assign overhead costs to cost pools so that these costs are better
controlled
c. To better assign overhead costs to products.
d. To assign indirect service overhead costs to direct overhead cost pools

17. Which of the following is not a benefit of activity-based costing?

a. More accurate product costing.
b. Enhanced control over overhead costs.
c. Less costly to use.
d. Better management decisions.

18. Which of the following factors would suggest a need to switch to activity-based costing?
a. Product lines similar in volume and manufacturing complexity.
b. Overhead costs constitute a significant portion of total costs.
c. The manufacturing process has been stable.
d. Production managers use data provided by the existing system.

19. Which of the following is typical of activity-based costing systems?

a. Use of a single predetermined overhead rate.
b. Use of direct labor hours or direct labor cost to assign overhead.
c. Assumption of correlation between direct labor and incurrence of overhead cost.
d. Use of multiple cost drivers to allocate overhead.

20. All of the following statements are correct except that

a. activity-based costing has been widely adopted in service industries.
 b. the objective of installing ABC in service firms is different than it is in a manufacturing
firm.
c. a larger proportion of overhead costs are company-wide costs in service industries.
d. the general approach to identifying activities and activity cost pools is the same in a
service company as in a manufacturing company.

21. Statement 1: Product costing consists of only direct materials and direct labor.
Statement 2: The selection of the factory overhead allocation method is important because
the method selected determines the accuracy of the product cost.
a. True, False c. False, True
b. True, True d. False, False

22. Statement 1: Managers depend on accurate factory overhead allocation to make decisions
regarding product mix and product price.
Statement 2: Managers depend on product costing to make decisions regarding continuing
operations, advertising, and product mix.
a. True, False c. False, True
b. True, True d. False, False

23. Statement 1: A plant-wide factory overhead rate is computed by dividing total budgeted
factory overhead costs by the plant-wide allocation base.
Statement 2: Zed Co. budgeted P600,000 of factory overhead cost for the coming year. Its
plant-wide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to
be produced are 200,000 units. Zed's plant-wide factory overhead rate is P6.00 per unit.
a. True, False c. False, True
b. True, True d. False, False

24. Statement 1: Irelia Co. budgeted P300,000 of factory overhead cost for the coming year. Its
plant-wide allocation base, machine hours, is budgeted at 50,000 hours. Budgeted units to
be produced are 100,000 units. Irelia's plant-wide factory overhead rate is P6.00 per
machine hour.
Statement 2: When a plant-wide factory overhead rate is used, the total overhead cost
allocated to all products is the same.
a. True, False c. False, True
b. True, True d. False, False

25. Statement 1: Service companies can effectively use single facility wide overhead costing to
compute product (service) costs.
Statement 2: Service companies can effectively use activity-based costing to compute
product (service) costs.
a. True, False c. False, True
b. True, True d. False, False

26. Statement 1: In a service organization, multiple department overhead rate method is the
most effective in providing information about the cost of services.
Statement 2: Service companies can effectively use multiple department overhead rate
costing to compute product (service) costs.
a. True, False c. False, True
b. True, True d. False, False

27. Statement 1: Activity Based Costing can be used to allocate period costs to various products
that the company sells.
Statement 2: Activity based costing can only be used to allocate manufacturing factory
overhead.
a. True, False c. False, True
b. True, True d. False, False

28. Statement 1: Activity based costing is much easier to apply than single plant-wide factory
overhead allocation.
Statement 2: Service organizations can use activity based costing to allocate selling and
administrative costs to services provided.
a. True, False c. False, True
b. True, True d. False, False

29. Statement 1: Direct labor hour is not a cost pool that is regularly used in the activity-based
costing method.
Statement 2: Estimated activity-base usage quantities are the total activity-base quantities
related to each product.
 a. True, False c. False, True
b. True, True d. False, False

30. Statement 1: Use of a plant-wide factory overhead rate distorts product costs when there
are differences in the factory overhead rates across different production departments and
when products require different ratios of allocation-base usage in each production
department.
Statement 2: When production departments differ significantly in their manufacturing
process, it is recommended that the single plan-wide factory overhead rate be used for
allocating factory overhead.
a. True, False c. False, True
b. True, True d. False, False

31. Braum Company has two service departments and two producing departments. Square
footage of space occupied by each department follows:

Custodial services 1,000 ft

General administration 3,000 ft
Producing department B 8,000 ft
Producing department A 8,000 ft
20,000 ft

The department costs of Custodial Services are allocated on a basis of square footage of
space. If Custodial Services costs are budgeted at P38,000, the amount of cost allocated to
General Administration under the direct method would be: P0

32. Caitlyn Company has two service departments and two producing departments. The number
of employees in each department is

Personnel 10
Cafeteria 25
Producing Department B 250
Producing Department A 265
550

The department costs of the Personnel Department are allocated on a basis of the number
of employees. If these costs are budgeted at P37,125 during a given period, the amount of
cost allocated to Department B under the direct method would be: P18,021.84

QUESTIONS 33 – 35. Brand, Inc. operates two user divisions as separate cost objects. To
determine the costs of each division, the company allocates common costs to the divisions.
During the past month, the following common costs were incurred:

Computer services (85% fixed) P 260,000

Building occupancy P 600,000
Personnel costs P 110,000
Total common costs P 970,000

The following information is available concerning various activity measures and service
usages by each of the divisions:

Division A Division B
Area occupied (square feet) 20,000 40,000
Payroll P380,000 P180,000
Computer time (hours) 200 220
Computer storage (megabytes) 4,050 -0-
Equipment value P200,000 P250,000
Operating profit (pre-allocations) P555,000 P495,000

33. If common computer service costs are allocated using computer time as the allocation basis,
what is the computer cost allocated to Division B? P 136,190
34. Using the most appropriate allocation basis, what is the personnel cost allocated to Division
A? P74,643
35. If all common costs are allocated using operating profit as the allocation basis, what is the
total cost allocated to Division B? P457,286

36. Diana Company has two service departments and two user departments. The number of
employees in each department is
 Personnel 10
Cafeteria 25
Producing department A 265
Producing department B 250
550

The fixed costs of the Personnel Department are allocated on a basis of the number of
employees. If these costs are budgeted at P37,125 during a given period, the amount of
cost allocated to the Cafeteria under the step method would be: P1,718.75

QUESTIONS 37 – 40. Ekko Complex, Inc. has two main services: (1) time on a timeshared
computer system, and (2) proprietary computer programs. Computer time is provided by the
operation department (Op) and programs are written by the programming department (P)

The percentage of each service used by each department for a typical period is:

Supplied
User Op P
Op -0- 40%
P 30% -0-
Sold to customers 70% 60%

In a typical period, the operation department (Op) spends P4,500 and the programming
department (P) spends P2,500.

37. Under the step method (Op first), what is the cost of the computer time for sale? P3,150
38. Under the step method (Op first), what is the cost of the computer programs for sale?
P3,850
39. Under the reciprocal method what is the algebraic solution to the cost allocation problem for
Op? Op = 4,500 + .40 P
40. Under the reciprocal method what is the algebraic solution to the cost allocation problem for
P? P = 2,500 + .30 Op

QUESTIONS 41 – 44. The Fiddlesticks Manufacturing Company has two service departments:
Maintenance and Accounting. The Maintenance Department's costs of P300,000 are allocated
on the basis of machine hours. The Accounting Department's costs of P120,000 are allocated
on the basis of the number of employees within a specific department. The direct departmental
costs for A and B are P300,000 and P500,000, respectively.

Maintenance Acctg. A B
Machine hours 480 20 2,300 200
Number of employees 2 2 8 4

41. What is the Maintenance Department's cost allocated to Department A using the direct
method? P276,000
42. What is the Accounting Department's cost allocated to Department B using the direct
method? P40,000
43. What is the Maintenance Department's cost allocated to Department B using the step
method and assuming the Maintenance Department's costs are allocated first? P23,810
44. What is the cost of the Accounting Department's cost allocated to Department A using the
step method and assuming the Maintenance Department's costs are allocated
first? P81,587

45. Products X, Y, and Z are produced from the same process at a cost of P5,200. Five
thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are:
X=P2 per unit, Y=P4 per unit, Z=valueless. The ending inventory of X is 50 units. What is
the value of the ending inventory if joint costs are allocated using net realizable value? P40

QUESTIONS 46 – 47. Xerath Company makes two products, G and H. They are initially
processed from the same raw material and then, after split-off, further processed separately.
Additional information is as follows:

G H Total
Final sales price P9,000 P6,000 P15,000
Joint costs prior to split-off point ? ? 6,600
Costs beyond split-off point P3,000 P3,000 6,000
46. What are the joint costs allocated to product G assuming Xerath uses the estimated net
realizable value approach? P4,400
47. What are the joint costs allocated to product H assuming Xerath uses the estimated net
realizable value approach? P2,200

QUESTIONS 48 – 49. Lissandra, Inc., manufactures products X, Y, and Z from a common

process. Joint costs were P60,000. Additional information is as follows:

If processed further
Units Sales Value at Sales Additional
Product Produced Split-off Value Costs
X 6,000 P40,000 P55,000 P4,000
Y 4,000 P35,000 P45,000 P6,000
Z 2,000 P25,000 P30,000 P8,000
12,000 P100,000 P130,000 P25,000

48. Assuming that joint production costs are allocated using the physical quantities method
(units produced), what were the costs allocated to Product X? P30,000
49. Assuming that joint product costs are allocated using the net realizable value method, what
were the total costs assigned to Product Y? P27,000

50. Warwick Corporation produced 3,660 units, consisting of three separate products, in a joint
process for the year. The market for these products was so unstable that it was not practical
to estimate the selling price of the products. A cost of P425,000 was incurred in the joint
process. Product X's production was 80% of product Y's while product Z's production was
125% of product Y's. What is the amount of the joint cost allocable to product X assuming
Warwick uses the physical quantities method of allocation? P111,475

QUESTIONS 51-52. Annie Manufacturing Company incurred a joint cost of P600,000 in the
production of R and S in a joint process. Presently, 1,800 of R and 1,400 of S are being
produced each month. Management plans to decrease R's production by 300 units in order
to increase the production of S by 500 units. Additionally, this change will require minor
modifications, which will add P20,000 to the joint cost. This cost is entirely attributable to
product S.

51. What is the amount of the joint costs allocable to R before changes to existing production
assuming Annie allocates their joint costs according to the proportion of S and R produced?
P337,500
52. What is the amount of the joint costs allocable to S before changes to existing production
assuming Annie allocates their joint costs according to the proportion of S and R produced?
P262,500

QUESTIONS 53 – 56. The Amumu Company produced three joint products at a joint cost of
P100,000. Two of these products were processed further. Production and sales were:

Weight Sales Addt’l Processing Costs

P 300,000 lbs. P245,000 P200,000
Q 100,000 lbs. P30,000 -0-
R 100,000 lbs. P175,000 P100,000

53. If the estimated net realizable value method is used and product Q is accounted for as a
main product, how much of the joint costs would be allocated to product R? P50,000
54. Assume Q is a by-product and Amumu uses the cost reduction method of accounting for by-
product cost. If estimated net realizable value is used, how much of the joint costs would be
allocated to product R? P43,750
55. If joint costs are allocated based on relative weight of the outputs and all products are main
products, how much of the joint costs would be allocated to product P? P60,000
56. What is the net income of Amumu Company if the estimated net realizable value method of
joint cost allocation is used? P50,000

57. One of Azir Company’s activity cost pools is machine setups, with estimated overhead of
P300,000. Azir produces slacks (400 setups) and shirts (600 setups). How much of the
machine setup cost pool should be assigned to slacks? P120,000

QUESTIONS 58-59. The overhead rate for Machine Setups is P100 per setup. Products A and
B have 80 and 60 setups, respectively.
58. The overhead assigned to Product A is: P8,000
59. The overhead assigned to Product B is: P6,000

QUESTIONS 60-62. Sivir Company has identified an activity cost pool to which it has allocated
estimated overhead of P1,920,000 and determined the expected use of cost drivers per that
activity to by 160,000 inspections. Widgets require 40,000 inspections, Gadgets 30,000
inspections, and Targets, 90,000 inspections.

60. The overhead assigned to Product “Widget” is: P480,000

61. The overhead assigned to Product “Gadget” is: P360,000
62. The overhead assigned to Product “Target” is: P1,080,000

QUESTIONS 63-64. Ezreal Company makes two products, E and M. E is being introduced this
period, whereas M has been in production for 2 years. For the period about to begin, 1,000
units of each product are to be manufactured. The only relevant overhead item is the cost
of engineering change orders. E and M are expected to require eight and two change
orders, respectively. E and M are expected to require 2 and 3 machine hours, respectively.
The cost of a change order is P600. If Ezreal applies engineering change order cost on the
basis of machine hours,

63. The overhead cost per unit to be assigned to E is: P2.40

64. The overhead cost per unit to be assigned to M is: P3.60

65. Jax Company produces products X and Y. The direct cost of X is P250 per unit (P100
materials and P150 labor) and Y is P350 (P230 material and P120 labor) per unit. Fifty units
of X and 150 units of Y were produced. Overhead amounts to P130,000 and is composed of
material handling P12,000, labor support P60,000, machine operation P48,000, and general
administration P10,000. Material handling cost driver is material cost, labor support cost
driver is labor cost. Machine operation cost resulted from running the machines a total of
480 hours (three-fourth of which was for product X). General administration effort related
equally to product X and Y. Material handling chargeable per unit of X (rounded) amounts
to: P30 ; P70

QUESTIONS 66-67. Gnar manufactures two versions of a product. Production and cost
information show the following:
Model A Model B
Units produced 200 400
Material moves (total) 20 80
Direct labor hours per unit 1 2
Material handling costs total P200,000.

66. Under ABC, the material handling costs allocated to each unit of Model A is: P200
67. Under ABC, the material handling costs allocated to each unit of Model B is: P400

68. Yasuo University Hospital plans to use activity-based costing to assign hospital indirect
costs to the care of patients. The hospital has identified the following activities and activity
rates for the hospital’s indirect costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P 95 per image
Pharmacy P 20 per physician order
Chemistry lab P 85 per test
Operating room P550 per operating room
hour
The records of two representative patients were analyzed, using the activity rates. The
activity information associated with the two patients is as follows:
Patient Flor Patient Laura
Number of days 7.0 3
Number of images 4.0 2
Number of physician orders 5.0 1
Number of tests 6.0 2
Number operating room hours 4.5 1
Determine the activity cost associated with Patient Flor: P4,515

QUESTIONS 69-70. Based on the following information. Nasus Company produces two
products in a single factory. The following production and cost information has been
determined:
 Model 1 Model 2
Units produced 1,000 200
Material moves (total) 100 40
Testing time (total) 250 125
Direct labor hours per unit 1 5
The controller has determined total overhead to be P480,000. P140,000 relates to material
moves; P150,000 relates to testing; the remainder is related to labor time.

69. If Nasus uses direct labor hours to allocate overhead to each model, what would overhead
per unit be for Model 2? P1,200
70. If Nasus uses activity-based costing to allocate overhead to each model, what would
overhead per unit be for Model 2? P925

QUESTIONS 71-72. Leona Company produces three products with the following production and
cost information:
Model A Model B Model C
Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5
Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs
P180,000.

71. What would be the per unit overhead cost for Model A if direct labor hours were the
allocation base? P41
72. What would be the per unit overhead cost for Model A if activity-based costing were used?
P74

QUESTIONS 73-74. Taric Company manufactures two products, Baron and Dragon. Taric's
overhead costs consist of setting up machines, P400,000; machining, P900,000; and
inspecting, P300,000. Information on the two products is:
Baron Dragon
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700

73. Overhead applied to Baron using traditional costing is: P600,000

74. Overhead applied to Dragon using activity-based costing is: P768,000

QUESTIONS 75-76. The Oilfield plant has two categories of overhead: maintenance and
inspection. Costs expected for these categories for the coming year are as follows:
Maintenance P100,000
Inspection P150,000
The plant currently applies overhead using direct labor hours and expected capacity of
50,000 direct labor hours. The following data have been assembled for use in developing a
bid for a proposed job:
Direct materials P1,000
Direct labor P4,000
Machine hours 500
Number of inspections 4
Direct labor hours 800
The total number of expected machine hours for all jobs during the year is 25,000, and the
total expected number of inspections is 1,500.

75. Using activity-based costing system and the appropriate activity drivers, the total cost of the
potential job would be: P7,400
76. Using direct labor hours to assign overhead, the total cost of the potential job would be:
P9,000

QUESTIONS 77-79. Consider the following facts for NM Company which produces product N
and M
Activity Cost Driver N’s M’s Unused Cost
share share
Setups # of set ups 10 40 5 5,500
 Ordering # of orders 5 10 5 3,200
Receiving # of receipts 22 12 6 2,400
Product # of parts 180 120 100 2,800
Dev.
Gen Mgt #, labor hrs 2,900 4,100 1,000 7,200
Security Area covered 3,200 5,400 400 9,000
Materials # of units produced 400 800 120,000
Labor # of DLH 1,700 3,100 1,200 56,000

77. Set up cost chargeable per unit of M accounting for unused capacity amounts to: P5.00
78. Ordering cost chargeable per unit of N ignoring unused capacity amounts to: P2.67
79. The cost of unused capacity excluding labor costs amounts to: 14,856

QUESTIONS 80-82. Sejuani Marketing Inc. manufactures two products, A and B. Presently, the
company uses a single plant-wide factory overhead rate for allocating overhead to products.
However, management is considering moving to a multiple department rate system for
allocating overhead.

Direct Product
Overhead Labor Hours A B
Painting Dept. P248,000 10,000 16 4
Finishing Dept. 72,000 10,000 4 16
Totals P320,000 20,000 20 20
======== ====== == ==

80. Determine the plant-wide factory overhead rate: P16 / DLH

81. Using a single plant-wide rate, determine the overhead rate per unit for Product A: P320
82. Using a single plant-wide rate, determine the overhead rate per unit for Product B: P320

QUESTIONS 83-85. The Delph Company produces two products, Blinks and Dinks. They are
manufactured in two departments, Fabrication and assembly. Data for the products and
departments are listed below.
Product Number of units Labor hrs per unit Machine hours per unit
Blinks 1,000 4 5
Dinks 2,000 2 8

All of the Machine hours take place in the Fabrication department, which has an estimated
overhead of P84,000. All of the labor hours take place in the Assembly department, which
has an estimated total overhead of P72,000. The Delph Company uses a single overhead
rate to apply all overhead costs based on labor hours.

83. What is the overhead cost per unit for Blinks? P78
84. What is the overhead cost per unit for Dinks? P39
85. What would the single plant-wide rate be? P19.50

86. The Veigar Lite Factory has determined that its budgeted factory overhead budget for the
year is P6,750,000 and budgeted direct labor hours are 5,000,000. Using the single
plantwide factory overhead rate based on direct labor hours, determine the factory overhead
rate for the year. P1.35
87.