Chapter 17

Activity Based Costing (ABC)

And Just in Time Costing (JIT)

The principal purpose of any costing system is to allocate the costs of

production (direct materials, and manufacturing overhead) to the units
purchased. The traditional costing systems are job order costing and
process costing. Candidates should also familiar with the other costing
systems such as the Activity Based Costing (ABC) and Just in Time (JIT)
costing systems.

ACTIVITY BASED COSTING

Activity based costing (ABC) is a refinement of the traditional costing

system of allocating manufacturing overhead to the units produced.
Traditional costing systems always use volume-related measures, such as
direct labor hours or machine hours to allocate overheads to products.

ABC allocates overhead costs to products on the basis of resources

consumed by each activity involved in the design, production, and
distribution of a particular product. This is accomplished by assigning costs
to cost pools that represent specific activities and allocating these costs
using the appropriate cost drivers to the product. Cost drivers are those
activities which have a direct cause and effect relationship to the
investment of a particular cost.

Comparison of Traditional Costing System and ABC

CPAR produces products two products: L and H. Both are produced on the same
equipment and use similar processes. Production data are as follows:

Product L Product H
Machine hours per unit 2 2
Direct labor hours per unit 4 4
Units produced 1,000 10,000
Total machine hours 2,000 20,000
Total direct labor hours 4,000 40,000
Number of purchase orders 80 160
Number of set-ups 40 60

The overhead cost of the activities is as follows:

Volume-related P 110,000
Purchasing-related 120,000
Set-up-related 210,000

Total overhead cost P 440,000*

(a) Traditional costing system:

Overhead rate per machine hour (P440,000/22,000 hours) P20

Overhead rate per direct labor hour (P440,000/44,000 hours) P10
Cost per unit of:
Product L based on machine hours (2 hrs x P20) P40
Product H based on direct labor hours (4 hrs x P10) P40

(b) ABC system

Volume-related Purchasing-related Set-up related
Overhead costs P110,000 P120,000 P210,000
Cost drivers 22,000 machine hrs 240 purchase orders 100 set-ups
Overhead cost per unit of
consumption P5/machine hr. P500/per order P2,100 per set-ups
Allocated costs to products:
L P10,000(2,000xP5) P40,000(80xP500) P84,000(40xP2100)
H P100,000(20,000xP5) P80,000(160xP500) P126,000(60xP2100)
Overhead cost per unit:
Product L = P134 (P10,000+P40,000+84,000)/1,000 units
Product H = P30.60 (P100,000+P80,000+P126,000)/10,000 units

JUST IN TIME SYSTEMS

Just in time (JIT) manufacturing is production systems in which each component in a

production line is produced immediately as needed by the next step in the production
line. The aim of JIT systems is to produce the required items, of high quality, exactly at
the time they are required. JIT systems are characterized by:

A move towards zero inventory

Elimination of non-value added activities
An emphasis on perfect quality ie, zero defects
 100% time deliveries
Demand-pull manufacture

It is the latter characteristics which gives rise to the name of Just in Time. Production
only takes place when there is actual customer demand for the product so JIT works on
a pull-trough basis which means that products are not made to go into stock. JIT
systems result in reduction in inventories so that inventory valuation becomes less
relevant. Simplified accounting procedures can be used for allocation costs between
cost of sales and inventories. This simplified procedure is known as backflush costing.
Candidates should be familiar with the features and the accounting procedures of
backflush costing.

Backflush Costing

Backflush costing is a costing system that omits recording some or all of the journal
entries relating to the cycle from purchase of direct materials (stage 1) to production
resulting in Work in Process (stage 2) to manufacture of finished goods (stage 3) and to
the sale of finished goods (stage 4). When journal entries for one or more stages in the
cycle are omitted, the journal entries for subsequent stage use normal or standard costs
to work backward to flush out the costs in the cycle for which journal entries were not
made. No separate accounting for work in process is made.

Actual conversion costs are recorded as incurred, just the same as conventional
recording systems. Conversion costs are then applied to products at various trigger
points. It is assumed that any conversion cost not applied to products are carried
forward and disposed of a year-end.

Under backflush costing, costs are applied to products when production is completed.

The following three methods illustrate backflush costing. The three method differ in the
number of trigger points at which journal entries are made in the accounting system.

Method 1 Method 2 Method 3

Trigger points 1. Purchase of raw materials 1. Purchase of raw materials

2. Completion of finished goods 1. Completion
of finished goods
3. sale of finished goods 2. sale of finished goods 2. sale of
of finished goods
Inventory a/c 1. Raw and in process (RIP) Raw and in process (RIP) Finished Goods a/c
Account a/c
2. Finished goods a/c
Main features 1. three trigger points 1. Two trigger points 1. simplest of all
 2. use if combined raw 2. use of combined raw 2. two trigger point
Materials and in process materials and in process
3.Nofinished goods a/c

In all three methods, there are no journal entries in the accounting system for work in
process (stage2). These three methods are usually used where the amounts of work in
process are small.

The following data will be used to illustrate the three methods:

Materials purchase on credit for the period P195,000

Conversion costs for the period 120,000
Number of units manufactured 10,000 units
Number of finished units sold 9,900 units

The cost per unit is P31 (19 materials + P12 conversion costs). There are no opening
stocks and for simplicity it is assumed that there are no variances. Using the backflush
Costing the journal entries under the three methods are:

Method 1: Three Trigger Points

Transaction Journal Entries

(a) Purchase of raw materials Raw and in process (RIP) 195,000

Accounts payable 195,000

(b) Incur conversion costs Conversion costs 120,000

Various accounts 120,000

(c) Completion of finished goods Finished goods 310,000

(10,000units x P31 = P310,000) Raw and in process (RIP) 190,000
Conversion costs 120,000

(d) Cost of goods sold Cost of goods sold 306,900

(9,900 units x P31 = P306,900) Finished goods 306,900

Entry C gives backflush costing its name. Note, costs have not been recorded
sequentially with the flow of product along its production route through work in process
and finished goods. Instead, the output trigger point reaches back and pulls the direct
materials costs From Raw and in Process account and the conversion costs for
manufacturing the finished goods

Method 2: Two Trigger Points

 Transactions Journal Entries

(a) Purchase of raw materials Raw and Process 195,000

Accounts payable 195,000

(b) Incur conversion costs Conversion costs 120,000

Various accounts 120,000

(c) Completion of finished goods No entry

(d) Cost of goods sold Cost of goods sold 306,900

Raw and in process 188,100
Conversion costs 118,800
The cost of finished units is computed only when finished goods are sold [which
corresponds to entry(d)]: 9,000 units sold x P31 per unit = P306,900, which is comprised
of direct materials costs (9,900units xP19per unit = P188,100) and conversion cost
(9,900 units xP12per unit = P118,800). The under-allocated (120,000-
118,800)conversion costs is closed to Cost of goods sold account.
608 Practical Accounting - 2

Method 3: Two Trigger Points

Transactions Journal Entries

(a) Purchase of raw materials No Entry

(b) Incur conversion costs Conversion Costs 120,000

Various accounts 120,000

(c) Completion of finished goods Finished goods 310,000

Accounts payable 190,000
Conversion costs 120,000

(d) Cost of goods sold Cost of goods sold 306,900

Finished goods 306,900

The above method doesnt record accounts payable for direct materials until the
products being manufactured are completed. This method of backflush costing is
feasible only if there is a short log between receipts of direct materials and completion
of production.

Problems
1. Uratex company manufactures a variety of classroom chairs. Its job-costing system
uses an activity-based approach. There are two direct-cost categories (direct materials
and direct labor) and there indirect cost pools. The cost pools represent three activity
areas at the plant.

Manufacturing Budgeted Cost Driver used Cost-allocation

Activity Area Cost for 2013 as Allocation Base rate

Materials Handling P200,00 Parts P0.25

Cutting 2,000,000 Parts 2.50
Assembly 2,000,000 direct labor hours 25,000

Two styles of chairs were produced on March, the high school chair, and the college
chair. Their quantities, direct material costs, and other data for March 2013 are as
follows:

Direct Direct
Units Materials Number Manufacturing
Produced Costs of Parts Labor hours

High school chair 5,000 P600,000 100,000 7,500

College chair 100 25,000 3,500 500

The direct labor rate is P20 per hour. Assume no begging or ending inventory.

What are the unit cost of the high school chair and college chair?

a. P240.50 and P571.75 respectively

b. P242.50 and 570.25 respectively
c. P252.50 and P571.25 respectively
d. P242.50 and P571.25 respectively
2. The manila company manufactures and sells packaging machines. It recently used
an activity-based approach to refine the job costing system at its BulacanPlant.. The
resulting job costing system has one direct-cost category (direct materials) and four
indirect manufacturing cost pools. These four indirect cost pools and their allocation
bases are:

Indirect Manufacturing Cost-Allocation Budgeted Cost-

Cost Pool base Allocation rate

1. Material handling Component parts P8 per part

2. Machining machine- hours P68 per hour
3. Assembly assembly-hours P75 per hour
4. Inspection inspection-hours P104 per hour
Manila Company recently sold 50 can-packaging machines to Ilocos Company. Each
machine has direct material costs of P3,000 requires 50 component parts, 12 machine
hours, 15 assembly hours, and 4 inspection hours.

Manila Companys previous costing system had one direct-cost category (direct
materials) and one indirect-cost category (manufacturing overhead allocated at therate
of P100 per assembly-hour).

In comparison to the traditional costing system used by Manila Company, the total
manufacturing cost of the machines sold under the ABC is:

a. P114,850 higher
b. P141,850 lower
c. P114,950 higher
d. Equal

3. Believing that its traditional cost system may be providing misleading information,
BMW company is considering an activity based costing approach, it now employs a full
cost system and has been applying its manufacturing overhead on the basis of machine
hours.

No. 3 Continued
The company plans on using 50,000 direct labor hours and 30,000 machine hours
in the coming year. The following data show the manufacturing overhead that is
budgeted.

Activity Cost Driver Budgeted Activity Budgeted Cost

Material handling No. of parts handled 6,000,000 P720,000
Setup costs No. of setups 750 315,000
Machine costs Machine hours 30,000 540,000
Quality control No. of batches 500 225,000

Cost, sales, and production data for one of the companys product for the coming year
are as follows:

Prime Costs:
Direct material cost per unit P4.40
Direct labor cost per unit, .05 direct labor
hour@P15 per hour 0.75
Sales and production data:
Expected sales 20,000 units
Batch size 5,000 units
 Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 90 machine hours per batch

If the company employs an activity-based costing system, the cost per unit for the
product described for the coming year will be:

a. P6.00
b. P6.08
c. P6.21
d. P6.30

4. Tamiya Corporation has use a traditional costing system to apply quality control costs
uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor
cost for its Product X is P275,000. in an attempt to distribute quality control costs more
equitable, Tamiya is considering activity-based costing (ABC). The June data shown
below have been gathered for Product X.

Activity Cost Driver Cost Rates Quantity

1. Material handling Type of materials P115 per type 12 types
2. Inspection Number of units P1.40 per unit 17,500 units
3. Production certification Per order P770 per order 25 orders
No. 4 Continued
What is the monthly quality control assigned to product X using the ABC?

a. P686.40 per order

b. 5,255 higher than the traditional costing system
c. P85,000.5
d. P5,255 lower than the traditional costing system

5. Yokomo Inc. accumulated the following cost information for its products, A and B.

Product A Product B
Units produced 2,000 1,000
Total direct labor hours 5,000 20,000
Set-up cost per batch P1,000 P2,000
Batch size 100 50
Total setup cost incurred P20,000 P40,000
Direct labor hour per unit 2 1

A traditional costing system would allocate setup costs on the basis of direct labor
hours. An ABC system would trace costs by spreading the cost per batch over the units
in a batch. What is the setup cost per unit of Product A under each costing system?
 Traditional costing ABC
a. P4.80 P10
b. P2.40 P10
c. P40.00 P200
d. P4.80 P20

6. Product ABC uses 200 hours of direct labor and has 2,000 machine set-ups. Larry Tan,
the cost accountant, has been considering using either direct labor hours or machine
set-ups as the cost driver. The ratio of overhead cost to direct labor hours is P60. The
assignment of overhead cost to Product ABC using direct labor hours would result in a
higher charge by P4,000 than if machine set-ups were used as the cost driver.

What is the ratio of overhead cost to machine set-up?

a. P6
b. P2
c. P60
d. P4

7. Mactan Enterprise is a Philippine exporter of souvenir items manufactured in the

capital city of Cebu. The following overhead cost data have been accumulated.

Amount
Activity Center Cost Driver of activity Center Costs

Material handling Kilos handled 100,000 grams P50,000

Painting Units painted 50,000 units 200,000
Assembly Labor hours 4,000 hours 120,000

Job RST contains 3,000 units. It weights 10,000 kilos and uses 300 hours of labor

What is the total overhead cost assigned to Job RST?

a. P31,955
b. P27,750
c. P26,000
d. P32,000

Numbers 8 and 9 are based on the following data:

Omega Company is preparing its annual profit plan. As part of its analysis of the
profitability of individual products, the controller estimates the amount of overhead
that should be allocated to the individual product lines from the information given as
follows:

Wall Specialty
Mirrors Windows
Units produced 25 25
Material moves per product line 5 15
Direct labor hours per unit 200 200
Budgeted materials handling costs P50,000

Under a costing system that allocates overhead on the basis of direct labor hours
(traditional), the materials handling costs allocated to one unit of wall mirrors would be

a. P1,000
b. P500
c. P2,000
d. P5,000

9. Under activity based costing (ABC), what is the materials handling costs allocated to
one unit of wall mirrors?

a. P1,000
b. P500
c. P1,500
d. P2,000

10. Delta Machine Toll Incorporated produces a varied product line without the use of
direct labor. An extensive setup procedure is required. Because no single base for a
predetermined overhead rate will provide Delta with reliable product cost information,
overhead is classified into two cost pools and two predetermined overhead rates are
used. For 2013, it is estimated that total overhead cost will consist of P525,000 of
overhead related to setups and P900,000 of overhead related to machine usage. Total
machine usage is expected to be 3,600 hours for the year, and the total number of
setups is expected to be 300.

Job RST requires parts and materials costing P56,000, 70hours of machine time, and
four setups.

What is the cost of Job RST?

a. P80,500
b. P78,500
c. P83,050
d. P79,500
11. The Love Company seeks to streamline the costing system at its Manila plant. It will
use a backflush costing system with three trigger points:

Purchase of raw materials

Completion of finished goods
Sale of finished goods
There are no beginning inventories. The following data pertain to April 2013:

Raw materials purchased P880,000

Raw materials used 850,000
Conversion cost incurred 422,000
Conversion allocated to finished goods 400,000
Costs transferred to finish goods 1,250,000
Cost of goods sold 1,190,000

No. 11 Continued

Assume no materials variances. The balance or RIP account at the end of April
2013 is:

a. P30,000
b. P880,000
c. P850,000
d. P0
12. The Futaba Manufacturing Company uses raw and in process (RIP) inventory
account. At the end of each month, all inventories are counted, their conversion costs
components are estimated, and inventory account balances are adjusted accordingly.
Raw materials cost is backflushed from RIP account to finished goods account. The
following data is for the month of August:

Beginning balance of RIP account P38,700

Conversion costs incurred 4,800
Raw materials purchased 680,000
Conversion costs allocated 5,300
Ending balance of RIP account 41,900

The amount of direct materials and conversion costs to backflushed to finished goods
are:

a. P676,800 and P4,800 respectively

b. P680,000 and P4,800 respectively
c. P676,800 and P5,300 respectively
d. P680,000 and P5,300 respectively
13. The Action Corporation manufactures electrical meters. For May, there were no
beginning inventories of raw materials and no beginning and ending work in process.
Action uses JIT manufacturing system and backflush costing with three trigger points for
making entries in the accounting system:

Purchase of raw materials debited to raw and in process account

Completion of finished goods debited to finished goods account
Sale of finished goods

No. 13 Continued
Actions May standard costs per meter are direct materials, p25; and conversion
costs, P20. The following data apply to May manufacturing:

Raw materials and components purchased P550,000

Conversion costs incurred P440,000
Number of finished units manufactured 21,000
Number of finished units sold 20,000

The balance of raw and in process and finished goods inventory accounts at the
end of May are:

a. P25,000 and P945,000 respectively

b. P550,00 and P45,000 respectively
c. P25,000 and P45,000 respectively
d. P550,000 and P945,000 respectively

14. The Pit Shop Company produces telephones. For June, there were no beginning
inventory of raw materials and no beginning and ending work in process. Pit Shop uses
JIT manufacturing system and backflush costing with two trigger points for making
entries in its accounting system.

Purchase of raw materials

Sales of finished goods

Pit Shops standard cost per unit of telephone in June is direct materials, P26; and
conversion costs, P15. The following data apply to June production:

Raw materials purchased P5,300,000

Conversion costs incurred 3,080,000
Number of finished units manufactured 200,000
Number of finished units sold 192,000
The balances of Raw and in process and cost of goods sold accounts at the end of June
are:

a. P308,000 and P7,872,000 respectively

b. P5,300,000 and P7,872,000 respectively
c. P308,000 ad P4,992,000 respectively
d. P4,992,000 and P2,880,000 respectively

15. The Hudy manufacturing company uses raw and in process (RIP) inventory account
and expensed all conversion costs to the cost of goods sold account. At the end of each
month, all inventories are counted, their conversion cost components are estimated,
and inventory account balances are adjusted accordingly. Raw materials cost is
backflushed fro RIP to finished goods. The following information is for the month if Pril:

Beginning balance of RIP account, including P1,400

of conversion cost P31,000
Raw materials received on credit 367,000
Ending RIP inventory per physical count, including
P1,800 conversion cost estimate 33,000

What is the amount of materials used to be backflushed from RIP to finished goods?

a. P365,000
b. P368,600
c. P367,000
d. P365,400

16. The HPI manufacturing company produces only for customers order and most work
is shipped within thirty-six hour after the receipt of an order. HPI uses a raw and in
process (RIP) inventory account and expensed all conversion costs to the cost of goods
sold account. Work is shipped immediately upon completion, so there is no finished
goods account. At the end of each month, inventory is counted, its conversion cost
component is estimated, and the RIP to cost of goods sold. The following information is
for the month of May:

Beginning balance of RIP account, including P1,300

of conversion P12,300
Raw materials received on credit 246,000
Ending RIP inventory per physical count, including
P2,100 conversion cost estimate 12,100

What is the amount of raw materials used to be backflushed from RIP to cost of goods
sold?
 a. P246,000
b. P246,200
c. P247,000
d. P245,000

Use the following data in answering Numbers 17 and 18

Mike Tuazon general manager of a highly automated coffee production plant in

Bulacan has provided the following information for transactions that occurred
during October. The production plan uses a JIT costing system.

a. Raw materials costing P300,000 were purchased.

b. All materials P300,000 were requisitioned for production.
c. Direct labor cost of P200.000 were incurred.
d. Actual factory overhead costs amounted to P995,000.
e. Conversion costs allocated totaled P1,300,000. This includes the direct
labor cost.
f. all units are completed and immediately sold.

17. What is the over-allocated or under-allocated conversion costs for the month?

a. P305,000 over-allocated
b. P195,000 under-allocated
c. P105,000 over-allocated
d. P105,000 under-allocated

18. Assuming no adjustment has been made for over-allocated or under-allocated

conversion cost, what is the balance of the cost of goods sold account on October 31?

a. P1,300,000
b. P1,495,000
c. P1,600,000
d. P1,195,000

19. Basilio Company has a cycle time of 3 days, uses raw and in process (RIP) account,
and charges all conversion costs to cost of goods sold. At the end of each month, all
inventories are counted, their conversion costs components are estimated, and
inventory account balances are adjusted. Raw material cost is backflushed from RIP to
finished goods. The following information is for June:

Beginning balance of RIP account, including P3,000

Of conversion costs P29,250
Beginning balance of finished goods account,
 Including P10,000 of conversion costs 30,000
Raw materials received on credit 562,500
Direct labor cost, P375,000; factory overhead applied,
P450,000 825,000
Ending RIP inventory per physical count, including
P4,500 of conversion costs 32,000
Ending finished goods inventory per physical count,
Including P8,750 of conversion costs 26,250

What is the conversion costs of units sold in June?

a. P825,250
b. P825,000
c. P840,000
d. P824,750

20. If Edsa Company has material cost of P10,000 in the June 1 RIP inventory account,
and P12,500 in June 30 RIP inventory account and the amount or raw materials used
backflushed from RIP inventory account on June 30 is P202,500, what is the amount of
raw materials purchased on credit for the month of June?

a. P205,000
b. P200,000
c. P225,000
d. P200,000

ANSWERS
1. d 6. d 11. a 16. c
2. a 7. c 12. c 17. c
3.d 8. a 13. c 18. c
4.b 9.b 14. a 19. d
5. a 10. a 15. d 20. a

SOLUTIONS AND EXPLANATIONS

1. High school chair:

Direct materials P600,000

Direct labor (7,500xP20) 150,000
Overhead:
Material handling (100,000xP0.25) P25,000
 Cutting (100,000x2.50) 250,000
Assembly (7,500xP25) 187,500 462,500
Total cost P1,212,500
Units produced /5,000
Unit cost P242.50*

College chair:

Direct materials P25,000

Direct labor (500xP20) 10,000
Overhead:
Material handling (3,500xP0.25) P875
Cutting (3,500xP2.50) 8,750
Assembly (500xP25) 12,500 22,125
Total cost P57,125
Units produced /100
Unit cost P571.25*
2. Traditional costing system:

Direct materials (50xP3,000) P150,000

Overhead (50x15)xP100 75,000
Total cost P225,000

Activity based costing system:

Direct materials P150,000

Overhead:
Materials handling (50x50)xP8 20,000
Machining (50x12)xP68 40,800
Assembly (50x15)xP75 56,250
Inspection (50x14)xP104 72,800 P339,850
Higher P114,850*

3. Overhead rates:
Material handling (P720,000/6,000,000 parts) P0.12
Setup costs (P315,000/750 setups) 420
Machining costs (P540,000/30,000 hours) 18.00
Quality control activity (225,000/500 batches) 450

Overhead costs:
Material handling (20,000 units x 5 parts)xP0.12 P12,000
Setup cost activity (20,000 units / 5,000 x 2 setups)xP420 3,360
Machining activity (20,000 units / 5,000 x 80 hrs.)xP18 5,760
Quality control activity (20,000 units / 5,000)xP450 1,800
 Total P22,920*

Overhead cost per unit (P22,920/20,000 units) P1.15

Direct material cost per unit 4.40
Direct labor cost per unit 0.75
Total unit cost P6.30*

4. ABC:

Material handling (115x12) P1,380

Inspection (P1.40x17,500) 24,500
Production certification (P770x25) 19,250 P45,130
Traditional costing (P275,000x14.5%) 39,875
ABC higher than the traditional costing by p5,255*
5. Traditional costing [(60,000/25,000)x2 direct labor hours)] P4.80*
ABC (P1,000/100) P10.00*

6. Overhead charge using labor hours: P60x200 P12,000

Overhead charge using machine hours: P12,000-P4,000 P8,000
Ratio of overhead costs to machine set-ups
P8,000/2,000 P4/set-up

7. Cost Assignment:
Materials handling (P50,000/100,000)x10,000 P5,000
Painting (P200,000/50,00)x3,000 12,000
Assembly (P120,000/4,000)x300 9,000
Total P26,000*

8. The P50,000 of costs is allocated over 10,000 hours [(P25x200 hours)/(25x200

hours)]. Thus, the overhead cost per hour is P5 (P50,000/10,000hrs.),and the per unit
overhead cost of wall mirrors is P1,000 (P5x200 direct labor hours).

Answer (b) is incorrect because P500 is the allocation based on number of material
moves. Answer (c) is incorrect because P2,000 assumes that all the overhead is allocated
to the wall mirrors. Answer (d) is incorrect because P5,000 assumes overhead of
P250,000.

9. ABC allocates overhead costs on the basis of some casual relationship between the
incurrence of cost and activities. Because the moves for wall mirrors constitute 25%
(5/20) of total moves, the mirrors should absorb 25% of the total materials handling
costs, or P12,500 (25%xP50,000). The remaining P37,500 is allocated to specialty
windows. The cost per unit of wall mirrors is P500 (P12,500/25)
Answer (a) is incorrect because P1,000 uses direct labor as the allocation basis. Answer
(c) is incorrect because P4,500 is the allocation per unit of specialty windows. Answer
(d) is incorrect because P2,500 is not based on the number of material moves.
10. Overhead rates:
Per machine hour P900,000/3,600 machine hours P250*
Per setup P525,000/300 setups P1,750*

Cost of Job RST:

Parts and materials P56,000
Applied overhead:
Machine hours (70xP250) P17,500
Setup (4xP1,750) 7,000 24,500
Total cost of Job RST P80,500*

11. Raw materials purchased (debit to RIP) P880,000

Raw materials used (credit to RIP) 850,000
Balance of RIP P30,000*

12. RIP account, beginning balance P38,700

Raw materials purchased 680,000
RIP account, ending balance (41,900)
Direct materials to be backflushed P676,800*
Conversion costs allocated to be backflushed P5,300*

13. Raw materials purchased Dr. to RIP P550,000

Direct materials to be backflushed Cr. To RIP (21,000xP25) 525,000
Balance of RIP account P25,000*

Cost of completed units (21,000 units xP45) P945,000

Cost of goods sold (20,000 units xP45) 900,000
Balance of finished goods inventory account P45,000*

14. Raw materials purchased Dr. to RIP P5,300,000

Direct materials to be backflushed (192,000 units x P26)
- Cr. To RIP 4,992,000
Balance of RIP P308,000*

Cost of goods sold (192,000 units xP41) P7,872,000*

15. Materials in begging in balance of RIP account (P31,000-P1,400) P29,600

Add materials received on credit 367,000
Total 396,600
Less materials in ending balance of RIP account (P33,000-P1,800) 31,200
 Materials used to be backflushed from RIP to finished goods P365,400*

16. Materials in beginning balance or RIP account (P12,300-P1,300) P11,000

Add raw materials received on credit 246,000
Total 257,000
Less materials in ending balance of RIP account (P12,100-P2,100) 10,000
Materials used to be backflushed form RIP to cost of goods sold P247,000*

17. Actual factory overhead P995,000

Direct labor cost incurred 200,000
Total actual conversion costs 1,195,000
Conversion costs allocated to production 1,300,000
Over-allocated conversion costs P105,000*

18. Materials used to be backflushed from RIP to cost of goods sold P300,000
Applied conversion costs to production 1,300,000
Cost of goods sold balance, October 31 P1,600,000*

19. Total conversion costs P825,000

Adjustments: increase in conversion costs in RIP
(P4,500-P3,000) (1,500)
Decrease in conversion costs in FG
(P10,000-P8,750) 1,250
Conversion costs of units sold in June P824,750*

20. Raw materials backflushed from RIP account P202,500

Materials in RIP inventory, June 30 12,500
Materials in RIP inventory, June 1 (10,000)
Raw materials purchased on credit during June P205,000*