COST ACCOUNTING AND COST MANAGEMENT 1

CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

EXERCISES

Exercise1: Theory (True or False)

1. Manufacturing costs are materials cost, labor cost, factory overhead, and manufacturing expenses.
2. The periodic inventory method is used under the non-cost system so that cost of raw materials used, cost of
goods manufactured, and cost of goods sold can be easily determined without the need for a physical count
of the resources.
3. Under the cost system, the raw materials cost figure is apt to include some items of materials even if they do
not form part of the finished product.
4. Under the non-cost system, unit cost for the current production cannot be promptly estimated because of
inadequate paper work.
5. There must be a decrease in raw materials inventory when raw materials purchases exceed cost of
materials used.
6. Cost of goods sold that exceeds cost of goods manufactured results in a decrease in finished goods
inventory.
7. The synonyms for factory overhead are manufacturing expenses and factory expenses.
8. In the preparation of the manufacturing worksheet, beginning inventories of raw materials and work in
process are debits while the ending inventories are credits.
9. In the preparation of the manufacturing worksheet, all items that are added in the statement of cost of
goods manufactured are extended as debits and all items that are deducted, as credits.
10. Under the non-cost system, journal entries are made for issuances of materials and completion of goods.
11. Examples of factory overhead are supervision, depreciation of factory machinery and factory fuel and oil.
12. Pilferages of materials and smuggling out of finished goods cannot be easily detected under a non-cost
system.

Exercise 2. Equations in the Statement of Cost of Goods Sold

Compute for the unknown or unknowns in each of the following cases:

Case A
Cost of goods manufactured P 15,000
Cost of goods sold 25,000
Finished goods invty., Jan 1 22,500
Finished goods invty., Dec 31 ?
Case B
Net purchases ?
Work in process invty., Jan 1 ?
Work in process invty., Dec 31 15,500
Raw materials used ( 60% of mfg. costs) ?
Raw materials invty., Jan 1 7,500
Raw materials invty., Dec 31 9,000
Cost of goods manufactured 73,000
Labor cost 17,500
Factory overhead 12,500
Case C
Cost of goods manufactured 35,000
Work in process invty., Jan 1 8,000
Work in process invty., Dec 31 ?
Raw materials used 20,000
Labor cost 10,000
Factory overhead ( 50% of prime cost) ?
Case D
Cost of goods manufactured 52,500
Cost of goods sold ?
Raw materials used 25,000

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 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

Factory overhead ?
( Work in process inventory decreased by P 10,000 while finished goods inventory
increased by P 7,500. Labor cost is 50% of raw materials used.)
Case E
Finished goods invty., Jan 1 P 10,000
Finished goods invty., Dec 31 6,000
Raw materials used 37,500
Labor cost 17,500
Factory overhead 16,000
Cost of goods sold 78,000
Work in process invty., Jan 1 ?
Work in process invty., Dec 31 ?
(Ending work in process inventory is 10% of cost of goods manufactured.)

Exercise 3: Journal Entries

Make the journal entries for Durian Mfg. Co. Based on the following information. The firm has adopted the
voucher system.

a. Materials purchases, P 37,500.

b. Purchase returns and allowances, P 2,500
c. Payroll:
Total P 32,500
Deductions:
SSS premiums P 875
PhilHealth 415
Pag-Ibig 150
Withholding taxes 600
Advances to employees 3,250
Union check-off 1,500 6,790
Net amount P 25,710
d. Breakdown of the payroll: factory, 55%, sales, 25% and office, 20%.
e. Disbursements made:
Insurance premiums – factory building and contents P 1,250
Lubricants, rags, brooms and insecticide 500
Meralco bill 2,050
Manila Water bill 1,000

(Shares of office and sales in light, power and water expenses are P 200 and P 150, respectively).

f. Sales on account, P 150,000.

g. Sales returns and allowances, P 3,000.
h. Payments:
Computer ink, pencils, and other office supplies P 900
TV and radio advertisements 3,000
Plastic bags, masking tape and other store su pplies 1,000
i. The premium for employees’ compensation (EC) insurance of P 300 and the employer’s counter part
contributions for the following are taken up : SSS, P 1,000, PhilHealth, P 550, Pag-IBIG, P150. Distribution:
factory, 60%, sales, 30% and office, 10%.
j. The total contributions to SSS, PhilHealth and Pag-IBIG and the EC premiums are remitted to the respective
offices.
k. Income taxes withheld are remitted to the BIR.
l. Collections from customers, P 90,000.
m. Depreciation charges: factory building, P 7,000; factory machinery and equipment, P 3,000; office furniture
and equipment, P 2,500; delivery van, P 2,300; and, store furniture, P 2,000.
n. Accrual of salaries and wages: factory – P 3,000; sales, P 1,500, and office – P 800.
o. Ending inventories:
Raw materials P 10,000
Work in process 7,500

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 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

Finished goods 9,500

p. The beginning inventories are closed:
Raw materials P 9,000
Work in process 8,500
Finished goods 5,000
q. The remaining manufacturing accounts are closed.
r. The remaining nominal accounts are closed.
s. The profit and loss summary account is closed to retained earnings.
Multiple Choice.
1. You are given the following data on the operations of Sunny Mfg. Corp:
Raw materials used P 129,000
Factory overhead 80,000
Work in process invty., Jan 1 35,000
Work in process invty., Dec 31 42,000
Finished goods invty., Jan 1 18,000
Finished goods invty., Dec 31 28,000
Cost per unit 20
Number of units sold, 12,500
How much is labor cost?
a. P 58,000 b. P 38,000 c. P 24,000 d. Not given
2 The following data are given by Domestic Mfg. Corp.:
Increased in finished goods invty. P 12,000
Decrease in raw materials invty. 10,000
Increase in work in process invty. 5,000
Purchase returns and allo. 6,000
Freight in 7,000
Labor cost 65,000
Factory overhead 25,000
Cost of goods sold 153,000
How much must be raw materials purchases?
a. P 57,000 b. P 69,000 c. P 55,000 d. not given
3 The following information is proviided by Maunlad Mfg. Corp:
Cost of goods manufactured P 470,000
Labor cost 100,000
Factory overhead 50,000
Finished goods, beg 30,000
Finished goods, end 20,000
Cost of goods sold 480,000
Raw materials used 500% of work in process, end
Work in process, end 75% of work in process, beg
Raw materials used must be:
a. P 300,000 b. P 290,000 c. P 450,000 d. not given
4 Golden Manufacturers provides you with the following data:
Cost of goods sold P 360,000
Raw materials used 150,000
Labor cost 100,000
Factory overhead 100,000
Ending inventory of work in process(B) and beginninng inventory of finished goods (C)inventories are 50% and 83
1/3%
Cost ofofgoods
beginning inventoryis:of work in process (A), respectively. Finished goods inventory, end is 140% of finished
manufactured
a. P 340,000 b. P 350,000 c. P 380,000 d. not given

5 The totals on the manfacturing work sheet prior to the inclusion of ending inventories are as follows:
Dr Cr
Manufacturing 210,000.00 3,600.00

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 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

Cost of goods sold 35,000.00 -

Income statement 95,000.00 310,000.00
Balance sheet ? 360,000.00

The ending inventories are: raw materials - P 38,000; work in process - P 50,000; and finished goods inventory, P
25,000.

How much must be cost of goods manufactured, cost of goods sold and net income?
Manufactured Sold Net income
a. P 68,400 P 166,400 21,500
b. 206,400 153,400 (226,400)
c. 118,400 128,400 86,600
d. Answer not given
6 The following information was taken from Cody Co.'s accounting records for 2013:
Decrease in raw materials inventory P 15,000
Increase in finished goods inventory 35,000
Raw materials purchased 430,000
Direct labor payroll 200,000
Factory overhead 300,000
Freight out 45,000

There was no wok in process inventory at the beginning or at the end of the year. Cody's cost of goods sold for 2013 is
a. P 895,000 b. P 910,000 c. P 950,000 d. P 955,000
7 How much is the unit cost of the sole product of the company based on the following information?
Factory overhead P 35,000
Increase in raw materials inventory 8,000
Sales 120,000
Decrease in work in process inventory 10,000
Gross profit based on sales 30%
Percentage of cost of goods sold based on cost of goods
manufactured 105%
Output 160,000 units

a. P .525 b. P .50 c. P . 605 d. None of the above

8 The footings on a manufacturing work sheet ( prior to adjustments and extension of the balances to the
corresponding succeeding columns) are as follows: Dr Cr
Manufacturing P 158,000 P 39,000
Cost of goods sold 25,000 26,000
Income statement 63,000 245,000

The following adjustments have not yet been included in the working paper:
* Unused factory supplies, P 2,600, still included in factory supplies expense
* Unrecorded purchase returns, P 15,000
* Bad debts, P 12,000
* Understatement in finished goods inventory, P 8,000

How much should be the net income

a. P 72,400 b. P 77,600 c. P 93,600 d. None of the above

9 How much should be the net change in finished goods inventory based on the following information?
Increase in raw materials inventory P 8,000

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 COST ACCOUNTING AND COST MANAGEMENT 1
CHAPTER 1 – REVIEW OF THE NON-COST SYSTEM

Decrease in work in process inventory 11,000

Direct labor cost 55,000
Factory overhead 30,000
Raw materials purchases 85,000
Freight in 7,000
Purchase returns and allowances 9,500
Freight out 2,500
Sales 275,000
Gross profit percentage (based on cost) 66.67%
a. Increase by P 5,500 c. Decrease by P 5,500
b. Decrease by P 21,500 d. None of the above
1
0 Product unit cost is P 35. Determine the amount of net purchases based on the following information:
Increased in finished goods inventory P 9,000
Decrease in work in process inventory 5,000
Increase in raw materials inventory 6,000
Direct labor cost 80,000
Factory overhead 64,000
Sales 420,000
Gross profit based on sales 50%
a. P 150,000 b. P 76,000 c. P 146,000 d. None of the above

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