AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.

Kua 1

COST SEGREGATION:
Problem 1: Scatter Graph High−Low Method :
First identify the highest∧lowest activity level ,
Total Monthly Cost thenuse the formula:
Variable Cost per Unit= Additional Cost ¿ ¿
50,000
AdditionalUnits
40,000
Solution:
Total Costs

30,000
20,000
10,000
-
0 2000 4000 6000 8000 10000 12000
Units Produced

 Required: Based on the above graph, compute the following

1. Total fixed cost Linear Regression :
2. Variable cost per unit TC = FC + (VC/U) (U)
3. Total cost if the number of units produced is 5,000 Y = a + bX
Problem 2: High-low and Linear Regression Methods ΣY =N a+b Σ X
X Y
X^2 Y^2 XY 2
n Unit Cost Σ X Y =Σ X a+ B b Σ X
1 13 P 895 169 801,025 11,635 Solution:
2 15 905 225 819,025 13,575
3 14 750 196 562,500 10,500
4 16 950 256 902,500 15,200
5 12 800 144 640,000 9,600
Sum 70 P 4,300 990 3,725,050 60,510

 Required: Using high-low method:

1. Fixed cost
2. Variable cost per unit
3. Total cost if units produced is 15.5

 Required: Using linear regression:

1. Fixed cost
2. Variable cost per unit
3. Units produced if total cost is P845

FACTORY OVERHEAD:
Problem 1: Normal Costing and Variances:
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 2

 ABC Corporation incurred actual overhead cost of P490,000, 40% of department “completed” one equivalent unit. It is “as-if” the department
which is fixed. finished manufacturing one unit.
 ABC Corporation has a budget of P200,000 and P312,500 for fixed * To easily compute for the equivalent units, always look at the right side of
and variable overhead costs respectively. This budget was planned the t-account (transferred-out and ending) and note the appropriate
with a normal capacity of 50,000 direct labor hours. percentage of completion.
 Actual labor hours total to 48,000.
 Required: Normal Costing: *NOTE 1: The t-account for physical units must balance. Some problems
1. What is the factory overhead rate? may provide you information for units started and ending units but not units
a. Fixed factory overhead rate completed (or transferred if you have multiple processing departments), just
b. Variable factory overhead rate complete the t-account.
c. Total Factory overhead rate
2. What is the applied factory overhead? *NOTE 2: When attempting to solve process costing problems, be careful
3. What is the factory overhead variance? with identifying the stage of completion. Some problems will provide you a
4. What is the capacity variance? percentage REMAINING to complete. Compute for the actual stage of
5. What is the spending variance? completion.

Problem 2: Closing the Variance: *FIFO costing separates the equivalent units of the beginning inventory and
 Total Overhead Variance - P2,000 Favorable the units started during the period. It also separates the cost of the units in
 Work-in-process, end - P500,000 the beginning inventory and the units started during the period.
 Finished Goods, end - P1,000,000
 Cost of Goods Sold - P3,500,000 Total Cost Beginning
 Required: If the variance is immaterial, what is the adjusted =Cost per EU Beginning
4. Work-in-process, end
Equivalent Unit Beginning
5. Finished Goods, end
6. Cost of Goods Sold Total Cost Added this period
 Required: If the variance is material, what is the adjusted =Cost per EU This period
7. Work-in-process, end
Equivalent Unit Added this period
8. Finished Goods, end
9. Cost of Goods Sold
*Average costing merges equivalent units and costs of the units in the
PROCESS COSTING: NOTES: beginning and of the units started during the period.
*Process costing is used when units produced are homogenous or similar.
Generally, units require the same material, labor, machine hours
and other resources. Total Cost Beginning +Total Cost Added this period
*There is no need to maintain a costing for each unit produced. Instead,
periodic analysis of costs incurred and units produced are made. The easiest
Equivalent Unit Beginning + Equivalent Unit Added this period
way to analyze costs and units produced are through t-accounts.
*The biggest challenge is how to separate the manufacturing costs into the ¿ Total Cost ¿ be Accounted ¿ be Accounted ¿
units fully processed and the units partially process. Units partially Total Equivalent Units¿
processed are allotted with the appropriate cost based on their stage of
completion (i.e. If a completed unit has a cost of P50, then a 60% completed ¿ Average Cost per EU
unit should be given a cost of P30, 60% of P50). But before we can even
arrive at the cost per unit, we have to find out the number of units produced.

*EQUIVALENT UNITS – units “completed” for cost accounting purposes. If a

producing department started 5 physical (actual) units which at the end of
the period reached 20% completion, then we can say that the produced
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 3

*There are times when the units being processed increase or decrease in STEP 3: Compute the cost per unit, cost of lost units, cost of units
production. transferred-out and cost of the ending units depending on the costing
*Common causes of INCREASES in units include: method (FIFO or average).
1. When the units are in pieces and the manufacturing STEP 4: Should there be any cost allocated to the lost unit, determine
process entails dividing the units started into several pieces. whether it is normal or abnormal. If abnormal, report as a separate expense.
2. When the units are in volume such as in liters, gallons or If normal, the normal loss will be absorbed by the good units.
cubic meter, and the manufacturing processes expand the volume of
the inventory. !!!Good units refer to the units that passed the percentage of
3. When the units are in weight such as in kilograms or completion which the lost units did not!!!!
tons, and the work-in-process are hydrated. *When units are lost at the start, then all good units which passed
the start will absorb the cost of the normal lost units.
*Common causes of DECREASES in units include: *When units are identified to be lost at the 70% inspection point,
1. When the units are in pieces and the manufacturing then all good units which passed the 70% inspection point will absorb the
process entails putting together the pieces. cost of the normal lost units.
2. When the units are in volume such as in liters, gallons or
cubic meter, and the manufacturing processes contracts the volume.
3. When the units are in weight such as in kilograms or
tons, and the work-in-process are shaved off (solids) or evaporated
(liquids).

*STEP 1: How to account for increase or decrease in physical units? Just

balance out the t-account for the Work-in-process in units. Increase in units
may be considered as additional debits and decreases as additional credits.

Work-in-process (Units)
Beg. X
Started/ Received X
Increase Decrease X
Transferred-out/ X
Completed
End X

*STEP 2: How to compute for the equivalent units of the increase or decrease
in units? Equivalent units are based on the right side of the t-account. For
increases, it will simply be absorbed into the credit side of the t-account. For
the decreases, the equivalent units would depend on its “percentage of
completion” which is based on WHEN the decrease in units was incurred.

Condition Percentage of Completion for EUP Purposes

Start 0%
During (at specified Stage of completion at the specified
inspection point) inspection point
During (Unspecified) and 100%
End
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 4

PROCESS COSTING:
Problem 1: First Department, Even Application
 ABC Corporation incurred P520,000 of manufacturing cost during its first month of operations. At the end of the month, total started is 120,000
units while total completed is 100,000 units. The remainder are completed at 20%.
 During the second month, it completed and transferred 140,000 units while 15,000 units require 60% more to complete. For the month, it
incurred total cost of P745,500.
 Required:
First Month Second Month – FIFO Second Month – Average

1. Equivalent units for the month

2. Cost per equivalent unit

3. Cost of units completed

4. Cost of units in the ending inventory

 Computation:
WIP, units WIP, cost (first month)

Beg. Beg.
Started Completed Started Completed

End. End.

Started Completed

End

WIP, Cost (FIFO) WIP, cost (Average)

Beg. Beg.

Started Completed Started Completed

End. End.
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 5

Problem 2: Subsequent Department, Even Application, INCREASE PROBLEM 4: Subsequent department, DECREASE, AVERAGE
Alpha Corporation transferred in 80,000 kilograms of dry ingredients into WIP, beg. – Second Dept. (6000 units, 40% complete, P101
the second department of its processing plant. These cost P480,000. prior dept cost per unit, P80 current department cost per
Additional ingredients costing P640,000 were then immediately added in equivalent unit) P 798,000
this department. Conversion cost for the month totaled P780,000. This month’s cost of units transferred in 3,610,000
By the end of the month, a total of 150,000 kilograms of the flour mix was This month’s manufacturing costs 2,965,120
transferred to the next department. Ending work-in-process consists of
10,000 units which are 60% complete. Transferred-in units 38,000
Required: Units transferred-in and transferred out 31,300
1. Increase in physical units Lost units incurred at the beginning of this department’s
Cost processing ?
Ending units (20% complete) 6,300
Prior Dept. Materia Conversion Total
l Required: Using weighted average costing and assuming lost units are
2. Equivalent units abnormal:
1. Cost of lost units
3. Cost per unit 2. Cost of units transferred out
3. Cost of units in the ending inventory
4. Cost of units
transferred
5. Cost of ending units

PROBLEM 3: First department, DECREASE, FIFO

WIP, Beg. – First Dept. (1,200 units, 30% complete) P 52,200
Total manufacturing cost for the month P 4,620,000
Required: Using weighted average costing and assuming lost units are
normal:
Units started 30,800
4. Cost of lost units
Units transferred 31,000
5. Cost of units transferred out
Normal lost units incurred 200
6. Cost of units in the ending inventory
Ending units (20% complete) ?
Required: Using FIFO
If lost units were incurred

At 10%
Beginning During/End
Inspection point
EUP

Cost of units transferred

Cost of ending units

AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 6
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 7

Problem 5: Subsequent Department, Uneven Application, FIFO/Average

 Autumn Corporation has two producing departments. The production data of the second department for the month of March are as follows:
Pesos Units
WIP, Beg. (40% complete) 168,200 4,000
Transferred-in – P61,600
Materials – P41,800
Conversion Cost – P64,800
Received from Dept. 1 465,400 30,000
WIP, End (60% complete) ? 6,000
Direct Materials (March) 315,200  
Conversion Cost (March) 346,000  
 Materials are added at the beginning of the process.

 Accounting for the units in production:

WIP, units

Beg.

Started Completed

End.

 Computation: FIFO
Additional Initial, Add’l, Beg. Units S&C Lost Units End
Transferred-In Beginning
This Month Beg. Units
Cost
=
EUP
Cost per unit

Additional Initial, Add’l, Beg. Units S&C Lost Units End

Materials Beginning
This Month Beg. Units
Cost
=
EUP
Cost per unit

Additional Initial, Add’l, Beg. Units S&C Lost Units End

Conversion Beginning
This Month Beg. Units
Cost
=
EUP
Cost per unit
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 8

 Computation: AVERAGE
Transferred-In Total Beginning Units S&C Lost Units End
Cost
=
EUP
Cost per unit

Initial, Add’l, Beg. Units S&C Lost Units End

Materials Total
Beg. Units
Cost
=
EUP
Cost per unit

Additional Initial, Add’l, Beg. Units S&C Lost Units End

Conversion Beginning
This Month Beg. Units
Cost
=
EUP
Cost per unit
AE212: Midterms: Level Up Tutorial: Illustrative Problems (Oct. 2022) Prepared by: M.Kua 9

JOINT AND BY-PRODUCT COSTING: PROBLEM 3: Joint products:

Problem 1: For the month of December, Delta Corporation manufactured products A
PROBLEM 1: By-products: (195,000 kilograms) and B (105,000 kilograms) from a joint process. Joint
Theta Corporation produces MP as its main product. However, the process cost incurred for the month totaled P240,000. Delta allocates the joint cost
also produces a byproduct, BP. based on the kilograms produced.

Theta produced 140,000 units of MP but only sold 120,000 units during the During the month, 80,000 kilograms of A and 60,000 kilograms of B were
year at a unit selling price of P8. Production cost per unit is P6 before sold.
accounting for the value of the by-product. Total selling expense is P30,000
while total administrative expense is P40,000. Required:
1. Joint cost allocated to
During the year, the corporation produced 30,000 units of BP. Each BP has a a. A
sales value of P1.50. Only 25,000 units were sold during the year. b. B
2. Total cost of product A
Required:
a. As cost of goods sold
1. Cost of sales if the creation of the byproduct is treated as a deduction
b. As ending inventory
from manufacturing costs.
3. Total cost of product B
2. Gross profit rate if the sale of the product is to be reported as a
a. As cost of goods sold
deduction from cost of sales
b. As ending inventory
PROBLEM 2: By-products:
Syntax Corporation produced 10,000 units of its main product during the
year while also producing 13,000 units of a by-product. The joint cost for
these units is P1,200,000.

Financial estimates for the by-product are as follows:

Final sales value (SV)per unit P 20
Add’l proc. cost per unit 3
Selling cost per unit 5% of SV
Admin. cost per unit 3% of SV
Normal profit allowance 12%of SV
The business sets up the byproduct inventory by costing them using the net
profit method.

Additional processing costs for the by-product were incurred as budgeted. Of

the 13,000 units, 10,000 units were sold.

Required:
1. Joint cost per unit of the main product
2. By-product ending inventory