ADVANCED FINANCIAL ACCOUNTING & REPORTING DECEMBER 15, 2019

Problem 1

MIAMI Manufacturing Co. uses a job-order cost system. Its job order cost
sheets for the month of April 2019 were as follows:

Job Job Job Job Job Job

410 411 412 413 414 415
WIP, 4/1/2019
Direct Materials 1,200 750
Direct Labor 1,800 1,440
Applied FOH 1,170 936

FG, 4/1/2019
Direct Materials 9,000 3,360
Direct Labor 12,000 4,200
Applied FOH 7,800 2,730

Cost utilized in
April:
Direct Materials 5,460 6,600 18,000 2,400
Direct Labor 7,200 8,400 21,000 3,600
Applied FOH 4,680 5,460 13,650

The company completed three jobs (Job Nos. 412,413, and 414) during April
2019. The applied factory overhead rate is 65% of direct labor cost, is the
same for each job. Thus, overhead was added to the cost sheets of said jobs
on the aforementioned rate.

Actual factory overhead as at April 1, 2019 amounted to P 18,000

Actual overhead for the month of April totaled P 9,000.

1. The cost of goods manufactured

for the month of April 2019 is
a. P 97,746
b. P 97,647
c. P 97,476
d. P 97,674

2. The cost of goods manufactured

for Job 412 is
a. P 52,650
b. P 21,510
c. P 23,586
d. P 51,650

3. The cost of goods manufactured

for Job 413 is
a. P 23,586
b. P 23,856
c. P 21,150
d. P 21,510

4. The cost of Jobs 414 and 415,

respectively, are
a. P 4,170 and P 3,126
b. P 28,800 and P 10,290
c. P 17,340 and P 20,460
d. P 52,650 and P 8,340
5. In a job order system, the use of direct materials previously purchased
usually is recorded as an increase in:
a. Raw materials inventory control
b. Factory overhead control
c. Work-in-process control
d. Finished goods control

6. The application of factory overhead costs under job order costing would
be reflected in the general ledger as an increase in
a. Factory overhead control
b. Cost of goods sold
c. Work in process
d. Finished goods

Problem 2

MAVERICKS Co. a manufacturing company used process costing for its products.
The products underwent two departments namely Assembly then Finishing.

The following data were extracted in the Finishing department. Beginning

inventory units - 10,000 which were 70% incomplete. Ending inventory units
– 5,000 which were 35% converted. Transferred-out units from the Assembly
department – 80,000 and spoiled units of 2,800 of which 2,500 were considered
normal.

In the finishing department, materials were added at the end of the process.
The following were the costs in the Finishing department: Beginning inventory
costs of Transferred-in, Direct Materials, and Conversion Costs respectively
were: P 150,000, P 80,000, and P 76,000.

Current costs of Direct Materials and Conversion were P 742,500 and P 650,000
respectively. Transferred-out cost from the Assembly department amounted to
P 1,162,500. Use FIFO Method.

7. What are the equivalent units

of production as to direct materials?
a. 85,000
b. 82,200
c. 80,300
d. 82,500

8. What is the cost of completed goods?

a. P 2,630,400
b. P 2,762,400
c. P 2,672,400
d. P 2,720,000

9. What is the cost of ending inventory?

a. P 89,000
b. P 134,000
c. P 59,000
d. P 120,000

10. What is the period cost?

a. P 5,100
b. P 9,600
c. P 7,200
d. P 6,900

11. Which of the following is not a characteristic of process costing

system?
a. Costs of raw materials, direct labor and factory overhead applicable
to each job are compiled to arrive at an average unit cost
 b. Costs posted to departmental work in process accounts
c. Production in process at the end of a period is restated in terms of
completed units
d. Costs not assigned to specific units but to a manufacturing process
or department

12. In process costing, units received by a department from another

department is treated by receiving department as:
a. Raw materials
b. Work in process
c. Finished goods
d. Equivalent units

Problem 3

The KENTUCKY Company processes unprocessed milk to produce two products,

Butter Cream and Condensed Milk. The following information was collected for
the month of June:

Direct Materials processed: 22,500 gallons (after shrinkage)

Production: Butter Cream 12,000 gallons

Condensed Milk 10,500 gallons
Sales: Butter Cream 11,500 gallons
Condensed Milk 10,000 gallons
Sales Price: Butter Cream P 3.50 per gallon
Condensed Milk P 9.00 per gallon
Separable costs in total: Butter Cream P 15,000
Condensed Milk P 35,800

The cost of purchasing the unprocessed milk and processing it up to the

split-off point to yield a total of 22,500 gallons of saleable product was
P 51,000. The company uses constant gross-margin percentage NRV method to
allocate the joint costs of production.

13. What is the allocated joint costs

of Condensed Milk? (Round
intermediary percentages to the
nearest hundredth.)
a. P 34,678
b. P 35,800
c. P 15,000
d. P 16,324

14. Which of the following formulas would calculate the net realizable value
of a product?
a. Final sales value minus separable costs
b. Sales value at the split-off point less cost to produce up to the
split-off point
c. Sales value X Constant gross margin
d. Final sales value minus cost of goods sold

Problem 4

The LAKERS Company processes unprocessed goat milk up to the split-off point
where two products, condensed goat milk and skim goat milk result. The
following information was collected for the month of October:

Direct Materials processed: 102,000 gallons (after shrinkage)

Production:
Condensed goat milk 42,500 gallons
 Skim goat milk 59,500 gallons

Sales:
Condensed goat milk P 3.25 per gallon
Skim goat milk P 2.75 per gallon

The costs of purchasing the unprocessed goat milk and processing it up to

the split-off point to yield a total of 102,000 gallons of saleable product
was P 188,480. There were no inventory balances of either product. Condensed
goat milk may be processed further to yield 42,000 gallons (the remainder is
shrinkage) of a medicinal milk product, Xyla, for an additional processing
cost of P 4 per usable gallon. Xyla can be sold for P 20 per gallon. Skim
goat milk can be processed further to yield 58,200 gallons of skim goat ice
cream, for an additional processing cost per usable gallon of P 4. The
product can be sold for P 12 per gallon. There are no beginning and ending
inventory balances.

15. What is the estimated net

realizable value of the
skim goat ice cream at the
split-off point?
a. P 680,000
b. P 465,600
c. P 672,000
d. P 476,000

16. Which of the following statements is TRUE of joint costing?

a. The costs of a production process that yields multiple products
simultaneously are called joint costs
b. Joint costing is less useful for companies which manufacture multiple
products simultaneously from the same production process
c. Distribution costs incurred beyond the split-off point that are
assignable to each of the specific products identified at the split-
off point are considered as joint costs
d. The primary purpose of joint costing is to allocate the separable
costs to the individual products that are eventually sold

Problem 5

The HOUSTON ROCKETS Corporation has a central materials laboratory. The

laboratory has only two users, the Large Rocket Department and the Small
Rocket Department. The following data apply to the coming budget year:

Budgeted costs of operating the materials laboratory for 100,000 to 200,000

technician hours per year:

Fixed costs per year P 7,400,000

Variable costs P 75 per technician hour

Budgeted long-run usage in hours per year:

Large Rocket Department 80,000 technician hours
Small Rocket Department 120,000 technician hours

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Large Rocket Department was 60,000 technician
hours and by the Small Rocket Department was 80,000 hours.

17. If a single-rate cost allocation

method is used, what amount of
materials laboratory costs will be
allocated to the Large Rocket
 Department? Assume actual usage is
used to allocate laboratory costs.
a. P 6,720,000
b. P 8,960,000
c. P 7,671,429
d. P 10,228,571

Problem 6

A company has identified the following overhead costs and cost drivers for
the coming year:

Overhead Item Cost Driver Cost Activity

Level
Machine Setup Number of setups P 20,000 200
Inspection Number of inspections P 130,000 6,500
Material Handling Number of material moves P 80,000 8,000
Engineering Engineering hours P 50,000 1,000

The following information was allocated on thee jobs that were completed
during the year:
Job 101 Job 102 Job 103
Direct materials P 5,000 P 12,000 P 8,000
Direct labor P 2,000 P 2,000 P 4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10

Budgeted direct labor cost was P 100,000, and budgeted direct material cost
was P 280,000.

18. Compute the cost of each unit

of Job 102 using Activity Based Costing
a. P 340
b. P 392
c. P 440
d. P 520

Problem 7

WIGGINS Manufacturing uses backflush costing to account for an electronic

meter it makes. During August 2019, the firm produces 16,000 meters of which
it sold 15,800. The standard cost for each meter is:
Direct materials P 20
Conversion cost 44
Total P 64

Assume that the company had no inventory on August 1. The following event
took place in August:
1. Purchased P 320,000 of direct materials
2. Incurred P 708,000 of conversion costs
3. Applied P 704,000 of conversion costs to Raw and In Process Inventory
4. Finished 16,000 meters
5. Sold 15,800 meters for P 100 each.

19. The amount of ending finished goods

a. Zero
b. P 12,775
c. P 12,800
d. P 12,850
20. The amount of cost of goods sold
after the adjustments of over-under
applied conversion cost amounted to:
a. P 1,011,200
b. P 1,015,200
c. P 1,022,000
d. P 1,024,000

Problem 8

MINESSOTA Company distributes the service department overhead costs to

producing departments and the following information for the month of January
is presented as follows:
Maintenance Utilities
Overhead costs incurred P 18,700 P 9,000
Services provided to:
Maintenance department - 10%
Utilities department 20% -
Producing department A 40% 30%
Producing department B 40% 60%

The company distributes service department costs based on the reciprocal

method.

21. What would be the formula to determine the total maintenance costs?
a. M = P 18,700 + .10U
b. M = P 9,000 + .20U
c. M = P 18,700 + .30U + .40A + 0.40B
d. M P 27,700 + .40A + .40B

Problem 9

The following information summarizes the standard cost for producing one
metal tennis racket frame. In addition, the variances for one month’s
production are given. Assume that all inventory accounts have zero balances
at the beginning of the month:

Standard Costs Standard Monthly

Per Unit Costs
Materials P 4.00 P 8,400
Direct Labor 2 @ P 2.60 5.20 P 10,920
Factory Overhead:
Variable 1.80 P 3,780
Fixed 5.00 P 10,500

Variances:
Material price, P 244.75 unfavorable
Materials quantity, P 500.000 unfavorable
Labor rate, P 520.00 unfavorable
Labor efficiency, P 2,080.000 unfavorable

22. What were the actual direct labor

hours worked during the month?
a. P 5,000
b. P 4,800
c. P 4,000
d. P 3,400

Problem 10

The standard cost per unit of component part KCP is P 4.00. during the month
6,000 units of KCP were purchased at a total cost of P 25,200. In addition,
7,100 units of KCP were used during the month, however, the standard quantity
allowed for actual production is 6,900 units.

23. The price variance, if materials

are recorded at standard cost (price):
a. P 1,200 unfavorable
b. P 1,420 unfavorable
c. P 1,200 favorable
d. P 1,420 favorable

24. The price variance, if materials

are recorded at actual cost (price):
a. P 1,200 unfavorable
b. P 1,420 unfavorable
c. P 1,200 favorable
d. P 1,420 favorable

25. In standard costing, an unfavorable price variance occurs because of

a. Price increases on raw materials
b. Price decreases on raw materials
c. Less than anticipated levels of waste in the manufacturing process
d. More than anticipated levels of waste in the manufacturing process

26. IFRS 4, Insurance Contracts, provides discretionary participation

features in insurance contracts recognized separately from the guaranteed
elements, where the issuer of such contract:
a. Shall classify that feature as either a liability or a separate
component of equity
b. Shall classify that feature as an intermediate category that is
neither liability nor equity
c. Shall classify the entire discretionary participation feature as a
liability
d. Shall classify the entire discretionary participation feature as a
separate component of equity

27. According to IFRS 4, Insurance Contracts, an insurer shall disclose the

following information that identifies and explains the amounts in its
financial statements arising from insurance contracts, except:
a. Its accounting policies for insurance contracts and related assets,
liabilities, income and expenses
b. The effect of changes in assumptions used to measure insurance assets
and insurance liabilities, showing separately the effect of each
change that has a material effect on the financial statements
c. The reconciliation of changes in insurance liabilities, reinsurance
assets, and, if any, related deferred acquisition costs
d. The comparative information that relates to annual periods beginning
January 1, 2005.

28. IFRS 4 provides that an insurer shall perform liability adequacy test
which involves at assessment at the end of each reporting period whether
its recognized insurance liabilities are adequate, using current estimates
of future cash flows under its insurance contracts. If at the end of the
reporting period, the insurer’s assessment shows that the carrying amount
of its insurance liabilities is inadequate in the light of the estimated
future cash flows. How shall the insurer treat or account the entire
deficiency?
a. It shall be treated as a change in accounting estimate accounted for
prospectively and recognized in profit or loss
b. It shall be treated as a change in accounting policy accounted for
by retrospective application
c. It shall be treated as a prior period error accounted for by
retrospective restatement
 d. It shall be treated as a cumulative or retrospective adjustment in
the beginning retained earnings

29. Under a financial asset model of service concession arrangement, the

operator has an unconditional right to receive cash if the grantor
contractually guarantees to pay the operator
a. Specified or determinable amounts
b. The shortfall between amounts received from users of the public
service and specified or determinable amounts
c. Either specified/determinable amounts or the shortfall between
amounts received from users of public service and
specified/determinable amounts
d. Neither specified/determinable amounts nor the shortfall between
amounts received from users of public service and
specified/determinable amounts

30. A feature of service concession arrangement is the public service nature

of the obligation undertaken by the operator. Which of the following is
one of the other common features under IFRIC 12, Service Concession
Arrangement?
a. The party that grants the service concession arrangement is a public
sector, like government body
b. The party that grants the service concession arrangement is a public
sector or a private sector entity to which the responsibility for
the service has been devolved
c. The grantor is responsible for at least some of the management of
the infrastructure and related services
d. The contract sets the initial prices to be levied by the grantor and
regulates price revisions over the period of the service arrangement

31. OKC entered into a concession agreement with the Philippine government
to operate the Skyway 3 expressway connecting SLEX to NLEX. The contract
provides that OKC Inc. has received a right, not a license, to charge
motorist for the public service and the revenue receivable is not agreed
upon in advance. The contract will last for 30 years. How shall OKC account
for its infrastructure asset in that service concession agreement?
a. The infrastructure asset shall be classified as property, plant and
equipment to be depreciated over the contract life of 30 years
b. The infrastructure asset shall be capitalized as financial asset to
be remeasured subsequently at fair value
c. The infrastructure asset shall be capitalized as intangible asset to
be amortized over the contract life of 30 years
d. The infrastructure asset shall be capitalized as prepaid asset to be
amortized over the contract life of 30 years

32. Industry 4.0 or commonly referred to as the fourth industrial

revolution is the current trend of automation and data exchange in
manufacturing technologies. Which of the following are included in this
current trend?
a. Mechanization, water power, steam power
b. Mass production, assembly line, electricity
c. Computer and automation
d. Cyber physical systems

33. Which of the following are challenges to the implementation of

Industry 4.0?
a. Need to maintain the integrity of production processes
b. Lack of adequate skill-sets to expedite the march towards fourth
industrial revolution
c. Insufficient qualification of employees
d. All of the above

34. The following industries are affected by Industry 4.0, except?

 a. Machine safety
b. Product lifecycles
c. Industry value-chain
d. All of the above are affected

35. A period in which one or more technologies is replaced by another

technology in a short amount of time
a. Technological Era
b. Technological Paradigm Shift
c. Technological Revolution
d. Technological Change

END OF ASSESSMENT

NOTHING FOLLOWS

SOLUTIONS:

Problem 1

1. Cost of Goods Manufactured for the month of April 2019

Work-in-Process, 4/1/19
Job 412 DM 1,200
DL 1,800
FOH 1,170 4,170
Job 413 DM 750
DL 1,440
FOH 936_ 3,126 7,296
Add: Total Manufacturing Cost, 4/19
Job 412 DM 5,460
DL 7,200
FOH 4,680 17,340
Job 413 DM 6,600
DL 8,400
FOH 5,460 20,460
Job 414 DM 18,000
DL 21,000
FOH 13,650 52,650
Job 415 DM 2,400
DL 3,600
FOH 2,340 8,340 98,790
Total Placed in Process, 4/19 106,086
Less: Work-in-Process, 4/30/19 (Job 215) 8,340
Cost of Goods Manufactured – April 2019 97,746

2. Cost of Goods Manufactured for Job 412

WIP, 4/1/19 – Job 412 4,170

TMC, April – Job 412 17,340
Cost of Goods Manufactured, Job 412 21,510

3. Cost of Goods Manufactured for Job 413

WIP, 4/1/19 – Job 413 3,126

TMC, April – Job 413 20,460
Cost of Goods Manufactured, Job 413 23,586
Problem 2

7. What are the equivalent units of production as to direct materials?

Completed units (10,000 + 80,000 – 5,000 – 2,800) 82,200

Abnormal lost units (300 x 100%) 300
EUP, Materials 82,500

8. What is the cost of completed goods?

Transferred-in
Completed 82,200
Ending Inventory EUP (5,000 x 100%) 5,000
Beginning Inventory EUP (10,000 x 100%) (10,000)
Abnormal lost units (300 x 100%) 300
EUP, Transferred-in 77,500

EUP, Direct Materials 82,500

Conversion Cost
Completed 82,200
Ending Inventory EUP (5,000 x 35%) 1,750
Beginning Inventory EUP (10,000 x 30%) (3,000)
Abnormal lost units (300 x 100%) 300
EUP, Conversion Cost 81,250

Cost/EUP – Transferred-in (1,162,500/77,500) 15.00

Cost/EUP – Direct Materials (742,500/82,500) 9.00
Cost/EUP – Conversion Cost (650,000/81,250) 8.00

Beginning Inventory Cost (150,000 + 80,000 + 76,000) 306,000

Beginning Inventory Cost to Complete this Year
Direct Materials (10,000 x 100% x 9.00) 90,000
Conversion Cost (10,000 x 70% x 8.00) 56,000
Total Beginning Inventory Completed Cost 452,000
Started and Completed Cost (72,200 x *32) 2,310,400
Cost of Completed Goods 2,762,400

*(15.00 + 9.00 + 8.00)

9. What is the cost of ending inventory?

Transferred-in (5,000 x 15.00) 75,000

Conversion Cost (1,750 x 8.00) 14,000
Ending Inventory 89,000

10. What is the period cost?

Abnormal Lost Units (300 x 32) 9,600

Problem 3

13. What is the allocated joint costs of Condensed Milk?

Theoretical Sales Value - Butter Cream (12,000 x 3.50) 42,000

Theoretical Sales Value – Condensed Milk (10,500 x 9.00) 94,500
Gross Theoretical Sales Value 136,500
 Separable Costs – Butter Cream 15,000
Separable Costs – Condensed Milk 35,800
Gross Separable Costs 50,800

Joint Costs 51,000

Gross Theoretical Sales Value 136,500

Less: Joint Costs 51,000
Less: Gross Separable Costs 50,800
Theoretical Gross Margin 34,700
Constant Gross Margin Percentage (34,700/136,500) 25.42%

Theoretical Constant Gross Margin – Butter Cream (42,000 x 25.42%) 10,676.40

Theoretical Constant Gross Margin – Condensed Milk (94,500 x 25.42%) 24,021.90

Butter Cream Condensed Milk

Gross Theoretical Sales Value 42,000 94,500
Less: Theoretical Constant Gross Margin (10,676) (24,022)
Less: Separable Costs (15,000) (35,800)
Allocated Joint Costs 16,324 34,678

Problem 4

15. What is the estimated net realizable value of the skim goat ice cream at the split-off point?

Theoretical Sales Value – Skim Goat Ice Cream (58,200 x 12) 698,400
Less: Further processing cost – Skim Goat Ice Cream (58,200 x 4) 232,800
Estimated Net Realizable Value – Skim Goat Ice Cream 456,600

Problem 5

17. If a single-rate cost allocation method is used, what amount of materials laboratory costs will be allocated
to the Large Rocket Department? Assume actual usage is used to allocate laboratory costs.

Budgeted Fixed Costs 7,400,000

Budgeted Variable Costs (200,000 hours x 75) 15,000,000
Total Budgeted Overhead Costs 22,400,000
Divided by Budgeted Technician Hours 200,000
Single Rate Budgeted Factory Overhead Rate 112

Allocated to Large Rocket Department (60,000 actual hours x 112) 6,720,000

Problem 6

18. Compute the cost of each unit of Job 102 using Activity Based Costing

Machine Setup Activity Rate (20,000/200) 100

Inspection Activity Rate (130,000/6,500) 20
Material Handling Activity Rate (80,000/8,000) 10
Engineering Activity Rate (50,000/1,000) 50

Job 102

Direct Materials 12,000

Direct Labor 2,000
Factory Overhead
Setup Costs (2 x 100) 200
Inspection Costs (10 x 20) 200
 Material Handling Costs (10 x 10) 100
Engineering Costs (50 x 50) 2,500 3,000
Total Costs 17,000
Total Number of Units 50
Cost of Each Unit of Job 102 (17,000/50) 340

Problem 7

19. The amount of ending finished goods

Standard Product Cost (64 x 16,000) 1,024,000

Ending Finished Goods (1,024,000 x 200/16,000) 12,800

20. The amount of cost of goods sold after the adjustments of over-under applied conversion cost amounted
to:

Standard COGS (1,024,000 x 15,800/16,000) 1,011,200

Under-applied Conversion Cost (708,000 – 704,000) 4,000
Adjusted Cost of Goods Sold 1,015,200

Problem 9

22. What were the actual direct labor hours worked during the month?

Standard Hours (10,920/2.60) 4,200 hours

Excess of Actual over Standard Hours (2,080/2.60) 800 hours
Total Actual Hours 5,000 hours

Problem 10

23. The price variance, if materials are recorded at standard cost (price):

Actual Purchase Cost 25,200

Standard Purchase Cost (6,000 x 4.00) 24,000
Materials Price Variance 1,200 unfavorable

24. The price variance, if materials are recorded at actual cost (price)

Actual Units at Actual Cost (7,100 x 4.20) 29,820

Actual Units at Standard Cost (7,100 x 4.00) 28,400
Materials Price Variance 1,420 unfavorable