Table of Specifications

TOPIC Theories Problems

Target Done Target Done
Cost concepts and behavior 3 3
Job order costing 3 3 10 10
Process costing (WA & FIFO) 4 4 15 15
Production losses (JO & PC) 4 4 15 11 (PC)
0 (JO)
Joint products & By-products 3 - 10 10
Labor 1 7
Materials 1 4 7 7
JIT & Backflush costing 2 7
Overhead 1 7 7
Total 22 78
The term "prime cost" refers to
a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.

Equivalent units of production are equal to the

a. units completed by a production department in the period.
b. number of units worked on during the period by a production department.
c. number of whole units that could have been completed if all work of the period had been used
to produce whole units.
d. identifiable units existing at the end of the period in a production department.

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

To compute equivalent units of production using the FIFO method of process costing, work for the
current period must be stated in units
a. completed during the period and units in ending inventory.
b. completed from beginning inventory, units started and completed during the period, and units
partially completed in ending inventory.
c. started during the period and units transferred out during the period.
d. processed during the period and units completed during the period.

Transferred-in cost represents the cost from

a. the last department only.
b. the last production cycle.
c. all prior departments.
d. the current period only.

Which of the following statements is false? The cost of rework on defective units, if
a. abnormal, should be assigned to a loss account.
b. normal and if actual costs are used, should be assigned to material, labor and overhead costs of
the good production.
c. normal and if standard costs are used, should be considered when developing the overhead
application rate.
d. abnormal, should be prorated among Work In Process, Finished Goods, and Cost of Goods Sold.

Normal spoilage units resulting from a continuous process

a. are extended to the EUP schedule.

b. result in a higher unit cost for the good units produced.

c. result in a loss being incurred.

d. cause estimated overhead to increase.

When the cost of lost units must be assigned, and those same units must be included in an equivalent
unit schedule, these units are considered

a. normal and discrete.

b. normal and continuous.

c. abnormal and discrete.

d. abnormal and continuous.

If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost
of that spoilage should be

a. included with the cost of the units sold during the period.

b. included with the cost of the units completed in that department during the period.

c. allocated to ending work in process units and units transferred out based on their relative
values.

d. allocated to the good units that have passed the inspection point.

A company has been ordering more than the economic order quantity. This would result in:

A. more frequent order points

B. carrying costs greater than order costs

C. equal safety stock costs and carrying costs

D. carrying costs less than order costs

 E. insufficient safety stock costs

A company expects to produce an average of 75,000 units per year, but last year production equaled 60,000 units.
For the coming year, estimated production is 90,000 units. Estimated overhead costs are $900,000,
and overhead is applied at the rate of $10 per unit. The company bases its overhead rates on:

A. theoretical (engineering) capacity

B. a short-term planning approach

C. historical capacity costs

D. expected actual capacity

E. normal capacity
22.The factor that need not be considered when calculating an inventory economic order quantity (EOQ) is:

A. annual sales of a product

B. safety stock level

C. order-placing costs

D. storage costs

E. risk of inventory obsolescence and deterioration

B 14. Of the following, the expense that is not relevant to determining the most economic quantity to
order is:

A. additional costs to store inventory

B. rental of warehouse space under a ten-year lease

C. interest expense of financing purchases

D. spoilage costs

E. variable costs of placing an order

B 15. A company has been ordering more than the economic order quantity. This would result in:

A. more frequent order points

B. carrying costs greater than order costs

C. equal safety stock costs and carrying costs

D. carrying costs less than order costs

E. insufficient safety stock costs

Which of the following could not be used in job-order costing?

a. standards

b. an average cost per unit for all jobs

c. normal costing

d. overhead allocation based on the job's direct labor hours

The source document that records the amount of time an employee worked on a job and his/her pay rate is the

a. job-order cost sheet.

b. employee time sheet.

c. interoffice memo.
d. labor requisition form

A credit to Work in Process Inventory represents

a. work still in process.

b. raw material put into production.

c. the application of overhead to production.

d. the transfer of completed items to Finished Goods Inventory.

Multiple or departmental manufacturing overhead rates are considered preferable to a single or plant-wide
overhead when

a. Manufacturing is limited to a single product flowing through identical departments in a fixed sequence.

b. Various products are manufactured that do not pass through the same departments or use the same
manufacturing techniques.

c. Individual cost drivers cannot accurately be determined with respect to cause and effect relationships.

d. The single or plant-wide rate is related to several identified cost drivers.

Perry Company.
Perry Company manufactures wood file cabinets. The following information is available for June
of the current year.
Beginning Ending
Raw Material Inventory P 6,000 P 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
The direct labor rate is P9.60 per hour and overhead for the month was P9,600.

47. Refer to Perry Company. Compute total manufacturing costs for June, if there were
1,500 direct labor hours and P21,000 of raw material was purchased.
a. P58,500
b. P46,500
c. P43,500
d. P43,100
ANS: C

Gallagher Company manufactures tables. The beginning balance of Raw Material

Inventory was P5,500; raw material purchases of P31,500 were made during the month. At month
end, P8,200 of raw material was on hand. Raw material used during the month was
a. P28,800
b. P31,500
c. P37,000.
d. P39,200

Holiday Company
The Holiday Company makes wreaths in two departments: Forming and Decorating. Forming began the
month with 500 wreaths in process that were 100 percent complete as to material and 40 percent
complete as to conversion. During the month, 6,500 wreaths were started. At month end, Forming had
2,100 wreaths that were still in process that were 100 percent complete as to material and 50 percent
complete as to conversion. Assume Forming uses the weighted average method of process costing.
Costs in the Forming Department are as follows:
Forming
Beginning Work in Process Costs:
Material P1,000

Conversion 1,500

Current Costs:
Material P3,200

Conversion 5,045

The Decorating Department had 600 wreaths in process at the beginning of the month that were 80
percent complete as to material and 90 percent complete as to conversion. The department had 300
units in ending Work in Process that were 50 percent complete as to material and 75 percent complete
as to conversion. Decorating uses the FIFO method of process costing, and costs associated with
Decorating are:
Decorating
Beginning WIP Inventory:
Transferred In P1,170

Material 4,320

Conversion 6,210

Current Period:
Transferred In ?

Material P67,745

Conversion 95,820
Refer to Holiday Company. How many units were transferred to Decorating during the month?
a. 600
b. 4,900
c. 5,950
d. 7,000
ANS: B

Wreaths completed from BWIP 500

Wreaths started and completed 4400
4900

Refer to Holiday Company. What was the cost transferred out of Forming during the month?
a. P5,341
b. P6,419
c. P8,245
d. P8,330
ANS: D
Units
Transferred
Out Cost per
Eq. Unit
Total

4,900 1.70 P8,330

Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of
equivalent units as to costs in Decorating for the transferred-in cost component.
a. 7,400
b. 7,700
c. 8,000
d. 8,600

ANS: C
The transferred-in cost component is the 8,000 units that were transferred in.

Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of
equivalent units in Decorating for material.
a. 7,970
b. 8,000
c. 8,330
d. 8,450

ANS: A

Materials: Decorating: FIFO Units % Complete Eqiv. Units

Beginning Work in Process 120

600 20%

7,700

+ Units Started and Completed 7,700 100%

150

+ Ending Work in Process 300 50%

7,970

Equivalent Units of Production

Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of
equivalent units in Decorating for conversion.
a. 7,925
b. 7,985
c. 8,360
d. 8,465

ANS: B

Conversion: Decorating: FIFO Units % Equiv.

Complete
Units

60
Beginning Work in Process 600 10%

7,700
+ Units Started and Completed 7,700 100%

225
+ Ending Work in Process 300 75%

Equivalent Units of Production

7,985
Refer to Holiday Company. Assume that 8,000 units were transferred to Decorating at a total cost of P16,000.
What is the material cost per equivalent unit in Decorating?
a. P8.50
b. P8.65
c. P8.80
d. P9.04

ANS: A

When FIFO is used, consider only current costs.

Current Costs Equiv Cost/

Units Equiv
Unit

P67,745 7,970 P8.50

Refer to Holiday Company. Assume that 8,000 units were transferred to Decorating at a total cost of P16,000.
What is the conversion cost per equivalent unit in Decorating?
a. P11.32
b. P11.46
c. P12.00
d. P12.78

ANS: C

When FIFO is used, consider only current costs.

Current Costs Equiv Cost/

Units Equiv
Unit

P95,820 7,985 P12.00

Refer to Holiday Company. Assume the material cost per EUP is P8.00 and the conversion cost per EUP is P15 in
Decorating. What is the cost of completing the units in beginning inventory?
a. P 960
b. P 1,380
c. P 1,860
d. P11,940

ANS: C

Costs to Complete Percent to Cost per

Unit
Beg Inv Units Complete Total

Materials 600 20% P8 P960

Conversion 600 10% P15 P900

Total Costs to Complete P1,860

Long Company transferred 5,500 units to Finished Goods Inventory during September. On September 1, the
company had 300 units on hand (40 percent complete as to both material and conversion costs). On
June 30, the company had 800 units (10 percent complete as to material and 20 percent complete as to
conversion costs). The number of units started and completed during September was:

a. 5,200.

b. 5,380.

c. 5,500.

d. 6,300.

ANS: A

Units Transferred Out 5,500

Less: Units in Beginning Inventory (300)

Units Started and Completed 5,200

Bush Company had beginning Work in Process Inventory of 5,000 units that were 40 percent complete as to
conversion costs. X started and completed 42,000 units this period and had ending Work in Process
Inventory of 12,000 units. How many units were started this period?

a. 42,000
b. 47,000

c. 54,000

d. 59,000

ANS: C

Beginning Work in Process 5,000

Add: Units Started 54,000

Deduct: Units Transferred Out 47,000

Ending Work in Process 12,000

 Cherub Co.
Beginning inventory (30% complete as to Material B 700 units
and 60% complete for conversion)
Started this cycle 2,000 units
Ending inventory (50% complete as to Material B and 500 units
80% complete for conversion)

Beginning inventory costs:

Material A P14,270

Material B 5,950

Conversion 5,640

Current Period costs:

Material A P40,000

Material B 70,000

Conversion 98,100

Material A is added at the start of production, while Material B is added uniformly throughout the
process.

83. Refer to Cherub Company. Assuming a weighted average method of process costing, compute EUP units
for Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,240 and 2,700, respectively

ANS: B
Weighted Average Material A Material B

Beginning Work in Process 700 700

Units Started and Completed 1500 1500

Ending Work in Process 500 250

EUP Materials 2700 2450

 DIF: Easy OBJ: 6-2,6-3

85. Refer to Cherub Company Assuming a weighted average method of process costing, compute EUP for
conversion.
a. 2,600
b. 2,180
c. 2,000
d. 2,700

ANS: A

Weighted Average

Beginning Work in Process 700

Units Started and Completed 1500

Ending Work in Process 400

2600

DIF: Moderate OBJ: 6-2,6-3

87. Refer to Cherub Company Assuming a weighted average method of process costing, compute the
average cost per unit for Material A.
a. P20.10
b. P20.00
c. P31.25
d. P31.00

ANS: A

Weighted Average: Material A

Beginning P 14,270
 Current Period 40,000

54,270 ÷ 2,700 = P 20.10

units per unit

DIF: Moderate OBJ: 6-2,6-3

90. Refer to Cherub Company Assuming a weighted average method of process costing, compute the
average cost per EUP for Material B.
a. P20.00
b. P31.25
c. P20.10
d. P31.00

ANS: D

Material B Costs Equivalent Average Cost

Units per EUP
(Beginning
Inventory and
Current Period)

P75,950 2,450 P31.00

DIF: Moderate OBJ: 6-2,6-3

92. Refer to Cherub Company Assuming a weighted average method of process costing, compute the
average cost per EUP for conversion.
a. P39.90
b. P45.00
c. P43.03
d. P47.59

ANS: A
Conversion Costs Equivalent Average Cost
Units per EUP
(Beginning WIP and
Current Period)

P98,100 + P5,640 2,600 P39.90

DIF: Moderate OBJ: 6-2,6-3

 Talmidge Company

The following information is available for Talmidge Company for the current year:

Beginning Work in Process Costs of Beginning Work in Process:

(75% complete) 14,500 units Material P25,100

Started 75,000 units Conversion 50,000

Ending Work in Process Current Costs:

(60% complete) 16,000 units Material P120,000

Abnormal spoilage 2,500 units Conversion 300,000

Normal spoilage 5,000 units

(continuous)
Transferred out 66,000 units

All materials are added at the start of production.

93. Refer to Talmidge Company. Using weighted average, what are equivalent units for material?
a. 82,000
b. 89,500
c. 84,500
d. 70,000

ANS: C

Materials: Weighted Average Units % Complete Eq. Units

Beginning Work in Process 14,500 100% 14,500

+ Units Started and Completed 51,500 100% 51,500

+ Ending Work in Process 16,000 100% 16,000

+ Abnormal Spoilage 2,500 100% 2,500

Equivalent Units of Production 84,500

DIF: Easy OBJ: 6-2,6-3,6-8

94. Refer to Talmidge Company. Using weighted average, what are equivalent units for conversion costs?
 a. 80,600
b. 78,100
c. 83,100
d. 75,600

ANS: B

Conversion: Weighted Average Units % Complete Eq Units

Beginning Work in Process 14,500 100% 14,500

+ Units Started and Completed 51,500 100% 51,500

+ Ending Work in Process 16,000 60% 9,600

+ Abnormal Spoilage 2,500 100% 2,500

Equivalent Units of Production 78,100

DIF: Easy OBJ: 6-2,6-3,6-8

95. Refer to Talmidge Company. What is the cost per equivalent unit for material using weighted average?
a. P1.72
b. P1.62
c. P1.77
d. P2.07

ANS: A

Weighted Average: Materials

Beginning P 25,100

Current Period 120,000

145,100 ÷ 84,500 = P 1.72

units per unit

DIF: Moderate OBJ: 6-2,6-3

96. Refer to Talmidge Company. What is the cost per equivalent unit for conversion costs using weighted
average?
 a. P4.62
b. P4.21
c. P4.48
d. P4.34

ANS: C

Weighted Average: Conversion

Beginning P 50,000

Current Period 300,000

350,000 ÷ 78,100 = P 4.48

units per unit

DIF: Moderate OBJ: 6-2,6-3

97. Refer to Talmidge Company. What is the cost assigned to normal spoilage using weighted average?
a. P31,000
b. P15,500
c. P30,850
d. None of the responses are correct

ANS: D
No costs are assigned to normal, continuous spoilage. Higher costs are assigned to good units
produced.

DIF: Easy OBJ: 6-8

98. Refer to Talmidge Company. Assume that the cost per EUP for material and conversion are P1.75 and
P4.55, respectively. What is the cost assigned to ending Work in Process?
a. P100,800
b. P87,430
c. P103,180
d. P71,680

ANS: D
 Equivalent Cost per Total
Units Equivalent Unit

16,000 P1.75 P28,000

9,600 P4.55 P43,680

P71,680

DIF: Easy OBJ: 6-2,6-3

99. Refer to Talmidge Company. Using FIFO, what are equivalent units for material?
a. 75,000
b. 72,500
c. 84,500
d. 70,000

ANS: D

Materials: FIFO

Beginning Work in Process - 0% -

+ Units Started and Completed 51,500 100% 51,500

+ Ending Work in Process 16,000 100% 16,000

+ Abnormal Spoilage 2,500 100% 2,500

Equivalent Units of Production 70,000

DIF: Easy OBJ: 6-2,6-4,6-8

100. Refer to Talmidge Company. Using FIFO, what are equivalent units for conversion costs?
a. 72,225
b. 67,225
c. 69,725
d. 78,100

ANS: B
 Conversion: FIFO

Beginning Work in Process 14,500 25% 3,625

+ Units Started and Completed 51,500 100% 51,500

+ Ending Work in Process 16,000 60% 9,600

+ Abnormal Spoilage 2,500 100% 2,500

Equivalent Units of Production 67,225

DIF: Easy OBJ: 6-2,6-3,6-8

101. Refer to Talmidge Company. Using FIFO, what is the cost per equivalent unit for material?
a. P1.42
b. P1.66
c. P1.71
d. P1.60

ANS: C

FIFO: Materials

Current Period P 120,000

120,000 ÷ 70,000 = P 1.71

units per unit

DIF: Easy OBJ: 6-2,6-4

102. Refer to Talmidge Company. Using FIFO, what is the cost per equivalent unit for conversion costs?
a. P4.46
b. P4.15
c. P4.30
d. P3.84

ANS: A
 FIFO: Conversion

Current Period P 300,000

300,000 ÷ 67,225 = P 4.46

units per unit

DIF: Easy OBJ: 6-2,6-4

103. Refer to Talmidge Company. Assume that the FIFO EUP cost for material and conversion are P1.50 and
P4.75, respectively. Using FIFO what is the total cost assigned to the units transferred out?
a. P414,194
b. P339,094
c. P445,444
d. P396,975

ANS: A

Transferred Out Units: FIFO Equiv Cost per Total

Units Equiv Unit

Beginning Work in Process 75,100

+ Completion of Beginning Inventory (14,500 * 25%) 3,625 4.75 17,219

+Units Started and Completed 51,500 6.25 321,875

Equivalent Units of Production 414,194

The following information is available for Odyssey Company's Material Y:

Annual usage in units........................................................................................................... 10,000

Working days per year......................................................................................................... 250

Normal lead time in working days....................................................................................... 30

Maximum lead time in working days................................................................................... 70

Assuming that the units of Material Y will be required evenly throughout the year, the order point
would be:

A. 2,000

B. 2,800
 C. 2,105

D. 1,200

E. 1,600

SUPPORTING CALCULATION:

[(10,000  250) x 30] + [(70 - 30) x 40]

30 (10,000  250) + 40 (70 - 30) = 2,800

Penguin Company manufactures winter jackets. Setup costs are $2.00. Penguin manufactures 4,000 jackets
evenly throughout the year. Using the economic order quantity approach, the optimal production
run would be 200 when the cost of carrying one jacket in inventory for one year is:

A. $0.10

B. $0.20

C. $0.40

D. $0.05

E. none of the above

SUPPORTING CALCULATION:

square root ( 2 _ 4,000 _ $2

CC )
CC

32.Bliss Company has an order point at 1,400 units, usage during normal lead time of 600 units, and an EOQ of
2,000 units. Its maximum inventory, assuming normal lead time and usage, would be:

A. 3,400 units

B. 2,000 units
 C. 1,200 units

D. 2,800 units

E. 4,000 units

SUPPORTING CALCULATION:

(1,400 - 600) + 2,000 = 2,800

Annual demand for squash racquets is 50,000 units, and carrying costs amount to $2 per unit. Order costs for the
company amount to $5. The optimum order quantity in units for squash racquets is (rounded to the
nearest unit):

A. 191

B. 500

C. 250

D. 100

E. 625

SUPPORTING CALCULATION:

square root ( 2$2_ 50,000 _ $5 ) = 500

There are 1,000 Trolls in stock, and 1,500 are due in from orders that were placed previously. The company sells
Trolls at the rate of 100 per day and finds that it takes an average of 20 days for an order to be
received. Because usage and lead times are known with certainty and because the company has
determined that an order must be placed now, the desired safety stock quantity must be equal to:

A. 500 units

B. 1,000 units

C. 2,500 units

D. 100 units

E. 1,500 units
SUPPORTING CALCULATION:

1,000 + 1,500 = (100 x 20) + SSQ

SSQ = 500

The Capillary Company wishes to determine the amount of safety stock that it should maintain for
Product D to result in the lowest cost. The following information is available:

Stock out cost.............................................................................................. $ 80 per occurrence

Carrying cost of safety stock........................................................................ $ 2 per unit
Number of purchase orders........................................................................ 5 per year

The options available to Capillary are as follows:

Units of Probability of Running

Safety Stock out of Safety Stock
10 50%
30 30%
50 10%
55 5%

The number of units of safety stock that will result in the lowest cost is:

A. 30

B. 50

C. 55

D. 10

E. none of the above

The following information relates to Hudson Company's Material A:

Annual usage in units........................................................................................................... 7,200

Working days per year......................................................................................................... 240
Normal lead time in working days....................................................................................... 20
Maximum lead time in working days................................................................................... 45

Assuming that the units of Material A will be required evenly throughout the year, the safety stock
and order point would be:

Safety Stock Order Point

A. 750 1,350
 B. 600 750

C. 600 1,350

D. 750 600

E. none of the above

SUPPORTING CALCULATION:

Safety Stock: (7,200  240) (45 - 20) = 750

Order Point: 20 (7,200  240) + 750 = 1,350

Brownfield Company applies factory overhead on the basis of direct labor hours. Budget and actual
data for direct labor and overhead for the year are as follows:

..................................................................................................... Budget Actual

Direct labor hours................................................................................... 600,000 550,000

Factory overhead costs........................................................................... $720,000 $640,000

The factory overhead for Brownfield for the year is:

A. underapplied by $40,000

B. overapplied by $20,000

C. overapplied by $40,000

D. underapplied by $20,000

E. neither underapplied nor overapplied

SUPPORTING CALCULATION:

$640,000 ⋅ ( $720,000
600,000
_ 550,000 ) = ($20,000 )
 Estimated factory overhead is $600,000, and the hours usage of machinery is expected to be
150,000. Factory overhead is applied at the rate of $10 per direct labor hour. The wage rate for
direct labor is $6 per hour, and the total number of estimated direct labor hours for the period is:

A. 100,000

B. 150,000

C. 300,000

D. 600,000

E. 60,000

SUPPORTING CALCULATION:

$600,000
= $10/ DLHR
x

x = 60,000

Avery Co. uses a predetermined factory overhead rate based on direct labor hours. For the month of October,
Avery's budgeted overhead was $300,000 based on a budgeted volume of 100,000 direct labor hours.
Actual overhead amounted to $325,000 with actual direct labor hours totaling 110,000. How much
was the overapplied or underapplied overhead?

A. $5,000 overapplied

B. $5,000 underapplied

C. $30,000 overapplied

D. $30,000 underapplied

E. none of the above

SUPPORTING CALCULATION:

$300,000
(110,000 )⋅ $325,000 = $5,000
100,000
Determining Overhead Rate; Normal Capacity Method. Desmond Corp. estimates that its production for the
coming year will be 10,000 widgets, which is 80% of normal capacity, with the following unit costs: materials, $40;
direct labor, $60. Direct labor is paid at the rate of $24 per hour. The widget shaper, the most expensive piece of
machinery, must be run for 20 minutes to produce one widget. Total estimated overhead is expected to consist of
$400,000 for variable overhead and $400,000 for fixed overhead.

Required: Compute the overhead rate for each of the following bases, using the normal capacity activity level:

(1)physical output 64 per widget

(2)materials cost

(3)direct labor cost

(4)direct labor hours

(5)machine hours

(Round answers to the nearest whole dollar or percentage.)

SOLUTION

$800,000
(1 ) = $64 overhead per widget
12,500 widgets

$800,000
(2) _ 100 = 160% of materials cost
($40 _ 12,500 widgets)

$800,000
(3 ) _ 100 = 107% of direct labor cost
($60 _ 12,500 widgets)

$800,000
(4 ) = $25.60 or $26 per direct labor hour
(2.5 hours _ 12,500 widgets )
Makiling Sawmill, Inc., purchases logs from independent timber contractors and
processes the logs into two joint products, two-by-fours of Narra A and four-by-eight of
Yakal B. In processing the two products, sawdust emerges and classified as by-product.
The packaged sawdust can be sold for P10 per kilo. Packaging cost for the sawdust is
P0.50 per kilo and sales commission is 105 of sales price. The by-product net revenue
serves to reduce joint processing costs for joint products. Joint products are assigned
joint cost based on board feet.
Data follows:
Joint processing costs - P100,000
Narra A - 400,000
Yakal B - 200,000
Sawdust produced (kilos) - 2,000

2What is the cost assigned to Narra A?

a. P61,000
b. 62,000
c. 63,000
d. 62,130

Manuel Tuason is the owner and operator of MT Bottling, a bulk soft-drink producer. A
single production process yields two bulk soft drinks: Rain Dew (the main product) and
Resi-Dew (the by-product). Both products are fully processed at the split off point, and
there are no separable costs.
For July 2013, the cost of the soft-drink operations is P120,000. Production and sales
data are as follows:

Production (In Liters) Sales (In Liters) Selling Price Per Liter
Main product: Rain Dew 10,000 8,000 P20
By-product: Resi – Dew 2,000 1,400 2
There were no beginning inventories on July 1, 2013.

Assuming by-product is recognized when produced:

27. What is the gross margin for MT Bottling?
a. P67,200
b. 71,200
c. 71,200
d. 70,000

28. What are the inventory costs reported in the balance sheet on July 31, 2013, for Rain
Dew and Resi – Dew?
Rain Dew Resi-Dew
a. P23,200 P1,200
b. 23,200 4,000
c. 22,300 1,200
d. 25,200 4,000
Assuming the by-product is recognized at sale?

29. What is the gross margin for MT Bottling?

a. P66,800
b. 64,000
c. 60,000
d. 65,000

30. What are the inventory costs reported on July 31, 2013, for Rain Dew and Resi-Dew?
Rain Dew Resi-Dew
a. P24,000 P0
b. 23,200 1,200
c. 24,000 1,200
d. 23,200 0

JMG Company buys Article X for P.80 per unit. At the end of processing in Department 1
Article X split into Products D, E, and F. Product D is sold at split-off point with no further
processing. E and F require further processing before they can be sold. E is processed in
Department 2; and F is processed in Department 3. The following is a summary of costs
and other data for the fiscal year ended July 31, 2013:

Department 1 Department 2 Department 3

Cost of Article X:
Direct materials P144,000 - -
Direct labor 21,000 P67,500 P97,500
Factory overhead 15,000 31,500 73,500

Product D Product E Product F

Units sold 30,000 45,000 67,500
Units on hand, July 31, 2012 15,000 - 22,500
Sales P45,000 P144,000 P212,625
JMG uses the estimated net realizable method of allocating joint costs.

31. What is the sales value of Product D at split-off point?

a. P45,000
b. 30,000
c. 67,500
d. 22,500
32. What is the cost of Product E sold for the year ended July 31, 2013?
a. P147,000
b. 99,000
c. 144,000
d. 135,000
33. What is the cost of the inventory of Product D on July 31, 2013?
a. P27,000
b. 18,000
c. 22,500
d. 54,000
34. What is the cost of the inventory of Product F on July 31, 2013?
a. P33,500
b. 65,250
c. 42,750
d. 90,000
A company has an annual carrying cost percentage of 30% and average work in process of P300,000. The
management plans to use Just-in-Time production system to double the velocity of work in process
without changing total annual output. What would be the savings in annual carrying costs?

a. 90,000

b. 45,000

c. 150,000

d. 180,000
A
company has an annual carrying c
ost percentage of 30% and average
work in process of P300,000.

The
management plans to use Just-
in-Time production system to
double the velocity of work in
process
without changing total annual
output. What would be the savings
in annual carrying costs?
a. 90,000
b. 45,000
c. 150,000
d. 180,000