Questions 1 through 4 are based on the following:

Simang purchases 5 percent of Bosyo’s outstanding stock on October 1, 2001 for P74,750. An additional
10 percent of Bosyo is acquired for P149,000 on July 1, 2002. Both of these purchases were accounted
for as available-for-sale investments. A final 20 percent is purchased on December 31, 2003, for
P342,000. With this final acquisition, Simang achieves the ability to significantly influence the decision-
making process of Bosyo.
Bosyo’s stockholders’ equity has a book value of P1,000,000 as of January 1, 2001. Information
follows concerning the operations of this company for the 2001-2003 period. Assume all income
occurred evenly throughout the years and dividends were paid every November 1 of each year.
Year Reported Income Dividends
2001 P200,000 P 80,000
2002 300,000 160,000
2003 240,000 90,000
On Bosyo’s financial records, the book values of all assets and liabilities are the same as their fair market
values. Any excess is allocated to unrecorded patent and is to be amortized over a 15-year period.
Amortization for a portion of a year should be based on months.
1. How much income from this investment was recognized on the books of Simang for the year 2001?
a. P10,000 b. P4,000 c. P2,500 * d. P2,212.50
2. How much income from this investment was recognized on the books of Simang for the year 2002?
a. P45,000 b. P24,000 * c. P30,000 d. P28,617
3. How much income from this investment was recognized on the books of Simang for the year 2003?
a. P13,500 b. P84,000 c. P36,000 d. P33,383 *
4. Determine the balance of investment that will be reported on the balance sheet of Simang for the year
ended December 31, 2003.
a. P565,750 b. P587,962.50 * c. P514,462.50 d. P589,462.50

Questions 5 and 6 are based on the following:

Winston has the following account balances as of February 1, 2000:
Inventory P 600,000 Common stock (P10 par value) P 800,000
Land 500,000 Retained earnings, Jan. 1,2000 1,100,000
Buildings (net) (fair value P1,000,000) 900,000 Revenues 600,000
Expenses 500,000
Arlington pays P1.4 million cash and issues 10,000 shares of its P30 par value common stock (valued at
P80 per share) for all of Winston’s outstanding stock and Winston is dissolved. Stock issuance costs
amount to P30,000. Prior to recording these newly issued shares, Arlington reports a Common Stock
account of P900,000 and Additional Paid-in Capital of P500,000.
5. Determine the goodwill that would be included in the February 1, 2000, financial statement of Arlington.
a. P200,000 b. P230,000 c. P100,000 * d. P130,000
6. Assume that Arlington pays cash of P2.0 million. No stock is issued. An additional P40,000 is paid in
direct combination costs, determine the retained earnings, 1/1/00 balance that would be included in the
February 1, 2000 financial statement of Arlington.
a. P1,100,000 * b. P1,200,000 c. P1,260,000 d. P1,160,000

Questions 7 and 8 are based on the following:

Partners A, B, C, and D have been operating ABCD Partnership for ten years. Due to a significant
reduction in the demand for their product over recent years, the partners have agreed to liquidate the
partnership. At the time of liquidation, balance sheet accounts consisted of cash, P103,500; noncash
assets, P300,000; liabilities to outsiders, P60,000; capital credit balances for partners A, B, and C,
P90,000, P150,000, and P120,000, respectively; and a debit capital balance for partner D of P16,500.
Partners share equally in income and loss. It is estimated that the administrative cost of liquidation will
total P4,500. While preparing for liquidation, an unrecorded liability of P7,500 was discovered.
7. Assuming the available cash of P103,500 was distributed, how much must be the share of partner B?
a. P31,500 b. P30,750 * c. P65,167 d. none
8. For how much must the noncash assets be sold for partner D to received at least P5,000?
a. P429,500 b. P501,500 c. P398,000 * d. P386,000

Questions 9 and 10 are based on the following:

The Walker, Wilson, and Winston Partnership is being liquidated. All liabilities have been paid. The
balance of assets on hand is being realized gradually. The following are details of partners’ accounts:
Capital Account Drawing Account Loans to P/L
Balances Balances Partnership Ratio
Walker P200,000 P15,000 Cr. P150,000 5
Wilson 250,000 20,000 Dr. - 2
Winston 100,000 30,000 Cr. 50,000 3
9. If you are to rank the partners from the most vulnerable to the least vulnerable, the ranking will be as
follows:
a. Walker, Wilson, and Winston, respectively. c. Winston, Wilson and Walker, respectively
b. Wilson, Walker, and Winston, respectively. d. Winston, Walker and Wilson, respectively. *
10. If partner Walker receives P150,000, how much partner Wilson receives?
a. P144,000 * b. P51,000 c. P86,000 d. PP129,000

11. The total of the partners’ capital accounts was P110,000 before the recognition of partnership goodwill in
preparation for the withdrawal of a partner whose income and loss sharing ratio is 2/10. He was paid
P28,000 by the firm in final settlement for his interest. The remaining partners’ capital accounts,
excluding their share of the goodwill, totalled P90,000 after his withdrawal. Compute the total goodwill
of the firm agreed upon.
a. P20,000 b. P48,000 c. P8,000 d. P40,000 *

Questions 12 through 14 are based on the following:

A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively, and share profits in
the ratio 3:2:1. D invest cash in the partnership for a one-fourth interest.
12. Assume D receives a one-fourth interest in the assets of the partnership, which includes credit for
P25,000 of goodwill that is recognized upon admission. How much cash D invest?
a. P100,000 b. P75,000 * c. P125,000 d. P50,000
13. Assume D receives a one-fourth interest in the assets of the partnership and D is credited with P20,000
of the bonus from the old partners that is recognized upon D’s admission. How much cash D invest?
a. P73,333 * b. P100,000 c. P93,333 d. P80,000
14. Assume D receives a one-fourth interest in the assets of the partnership and B is credited with P15,000
of the bonus from D, how much cash D invest?
a. P115,000 b. P105,000 c. P160,000 * d. P120,000

Questions 15 and 16 are based on the following:

Several years ago Killough and Seago formed Hokie Partnership. The partnership agreement states that
each partner is to receive a salary of P10,000 per month and 5% interest on beginning-of-the-year
capital balances; any remainder would be divided between Killough and Seago in the ratio 2:3,
respectively. The unadjusted trial balance of Hokie Partnership as of December 31, 20x6, appears as follows:
Debits Credits
Cash P 500,000 Accounts payable P 350,000
Accounts receivable 300,000 Notes payable 200,000
Inventory, January 1, 20x6 400,000 Killough, capital 750,000
Furniture & fixtures, net 150,000 Seago, capital 620,000
Building, net 300,000 Sales 800,000
Killough, drawing 100,000
Seago, drawing 120,000
Purchases 600,000
Operating expenses 250,000
Total P2,720,000 Total P2,720,000
Additional information:
1. December 31, 20x6, inventory was P550,000. 20x6 purchases of P600,000 were recorded using
the periodic inventory method.
2. Depreciation for 20x6 on furniture and fixtures and building is determined to be 10% and 20%
respectively, of net valuation.
3. On July 1, 20x6, the partnership recorded a P100,000 additional capital contribution by Seago.
Killough made no additional capital contributions during the year.
15. Determine the share of partner Killough on the net income of 20x6.
a. P46,100 * b. (P21,100) c. (P19,100) d. P44,100
16. Determine the ending capital balance of partner Seago on December 31, 20x6.
a. P480,100 b. P521,100 c. P478,900 * d. P694,100

Questions 17 through 19 are based on the following:

Alley and Barvey established a partnership on December 1, 20x4. They agreed that Alley will contribute
cash of P20,000; Land of P15,000 and Building of P50,000. Alley’s accounts payable of P10,000 is to be
assumed by the partnership. Barvey will contribute cash of P30,000 and furniture and fixtures of P25,000.
17. Assume that each partner is to be credited for the full amount of net assets invested, how much are the
capital balances of each partner?
a. P85,000 for Alley and P55,000 for Barvey c. P65,000 for Alley and P65,000 for Barvey.
b. P75,000 for Alley and P55,000 for Barvey * d. P75,000 for Alley and P75,000 for Barvey.
18. Assume that each partner initially should have an equal interest in partnership capital with no
contribution of intangible asset (bonus method). How much are the capital balances of each partner?
a. P85,000 for Alley and P55,000 for Barvey c. P65,000 for Alley and P65,000 for Barvey. *
b. P75,000 for Alley and P55,000 for Barvey d. P75,000 for Alley and P75,000 for Barvey.
19. Assume that each partner initially should have an equal interest in partnership capital, and any
contributed goodwill should be recognized (goodwill method). How much are the capital balances of
each partner?
a. P85,000 for Alley and P55,000 for Barvey c. P65,000 for Alley and P65,000 for Barvey.
b. P75,000 for Alley and P55,000 for Barvey d. P75,000 for Alley and P75,000 for Barvey.*

20. On June 1, 20x6, M Corporation, franchisor, received P200,000 from MM representing down payment on
the franchise agreement signed that day. MM gave M a non-interest bearing promissory note for the
balance of P1,000,000 payable in four equal semi-annual instalments. Franchise service was substantially
completed by M on November 15 at a cost of P900,000. On December 1, 20x6, the first semi-annual
instalment became due and was accordingly paid by MM. The interest for this kind of note will be 18%
per annum. M appropriately uses the accrual method in recording franchise revenues. In its Dec. 31,
20x6 financial statements, how much will M report as franchise revenue earned for the year?
a. P1,200,000 b. P1,010,000 c. P300,000 d. P110,000 *

Questions 21 through 23 are based on the following:

V Construction Company has used the cost-to-cost percentage of completion method of recognizing
profits. Michael V assumed leadership of the business after the recent death of his father, Rudy V. In
reviewing the records, Michael V finds the following information regarding a recently completed building
project for which the total contract price was P5,000,000.
Construction in progress account balance 20x2 P1,000,000
Construction cost incurred during 20x4 2,050,000
Gross profit (loss) recognized in 20x2 100,000
Gross profit (loss) recognized in 20x3 350,000
Gross profit (loss) recognized in 20x4 ( 50,000)
21. How much cost was incurred in 20x3?
a. P1,650,000 * b. P2,550,000 c. P900,000 d. P4,600,000
22. How much must be the balance of Construction in Progress account at the end o 20x3?
a. P1,550,000 b. P2,650,000 c. P3,000,000 * d. P4,600,000
23. How much is the estimated cost to complete the project at the end of 20x3?
a. P4,250,000 b. P1,600,000 c. P1,550,000 d. P1,700,000 *

Questions 24 and 25 are based on the following:

Octopus Retail Company sells goods for cash, on normal credit (2/10, n/30). However, on July 1, 20x4,
the company sold a used computer for P22,000; the inventory carrying value was P4,400. The company
collected P2,000 cash and agreed to let the customer make payments on the P20,000 whenever possible
during the next 12 months. The company management stated that it had no reliable basis for estimating
the probability of default. The following additional data are available: (a) collections on the instalment
receivable during 20x4 were P3,000 and during 20x5 were P2,000, and (b) on December 1, 20x5,
Octopus Retail repossessed the computer (estimated net realizable value, P7,000).
24. Determine the realized gross profit on instalment sales for the year 20x4.
a. P1,600 b. P4,000 * c. P2,400 d. P5,600
25. Determine the gain or loss on repossession recognized in 20x5.
a. P3,000 loss b. P3,000 gain c. P4,000 loss d. P4,000 gain *

26. Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based
costing system contains the following six activity cost pools and activity rates:
Activity Cost Pool Activity Rates
Labor related P6 per direct labor-hour
Machine related P4 per machine hour
Machine setups P50 per setup
Production orders P90 per order
Shipments P14 per shipment
Product sustaining P840 per product

Activity data have been supplied for the following two products:
Total expected activity
K425 M67
Number of units produced per year 200 2,000
Direct labor-hours 80 500
Machine-hours 100 1,500
Machine set ups 1 4
 Production orders 1 4
Shipments 1 10
Product sustaining 1 1
Determine the total and average per unit cost of product M67.
a. P1,874 and P9.37, respectively. c. P169,034 and P845.17, respectively.
b. P10,540 and P5.27, respectively. * d. P1,689,700 and P844.85, respectively.

27. Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers. The grease is
produced in two processing department: Refining and Blending. Raw materials are introduced at various
points in the Refining Department.
The following incomplete Work in Process account is available for the Refining Department for
March:
Work in Process – Refining Department
---------------------------------------------------------------------------------------------------------------------
March 1 inventory (20,000 gallongs Completed and transferred
Materials 100% complete, labor ? to blending ( ? gallons)
Overhead 90% complete) 38,000
March costs added:
Raw oil materials (390,000 gallons) 495,000
Direct labor 72,000
Overhead 181,000
---------------------------------------------------------------------------------------------------------------------
March 31 inventory (40,000 gallons;
Materials 75% complete; labor
Overhead 25% complete ?

The March 1 work in process inventory in the Refining Department consists of the following cost
elements: raw materials, P25,000; direct labor, P4,000; and overhead, P9,000.
Assuming that the company uses the weighted average method, determine the total costs transferred
out to Blending Department.
a. P740,000 * b. P786,000 c. P748,000 d. P702,000

28. Chocolaterie de Geneve Company makes chocolate truffles that are sold in popular embossed tins. The
company has two processing departments – Cooking and Molding. In the Cooking Department, the raw
ingredients for the truffles are mixed and then cooked in special candy-making vats. In the Molding
Department, the melted chocolate and other ingredients from the Cooking Department are carefully
poured into molds and decorative flourishes are applied by hand. After cooling, the truffles are packed
for sale. The company uses a process costing system. The T-account below show the flow of costs
through the two departments in April:
Work in Process – Cooking
----------------------------------------------------------------------------------------------------------------
Balance 4/1 8,000 160,000 Transferred out
Direct materials 42,000
Direct labor 50,000
Overhead 75,000

Work in Process – Molding

-----------------------------------------------------------------------------------------------------------------
Balance 4/1 4,000 240,000 Transferred out
Transferred in 160,000
Direct labor 36,000
Overhead 45,000

Determine the work in process ending inventory for the month of April.
a. P15,000 b. P5,000 c. P20,000 * d. P10,000

29. The Polaris Company uses a job-order costing system. The following data relate to October, the first
month of the company’s fiscal year.
a. Raw materials purchased on account, P210,000.
b. Raw materials issued to production, P190,000 (P178,000 direct materials, and P12,000 indirect materials).
c. Direct labor cost incurred, P90,000; indirect labor cost incurred, P110,000.
d. Depreciation recorded on factory equipment, P40,000.
 e. Other manufacturing overhead costs incurred during October, P70,000.
f. The company applies manufacturing overhead cost to production on the basis of P8 per machine-
hour. There were 30,000 machine-hours recorded for October.
g. Production orders costing P520,000 according to their job cost sheets were completed during
October and transferred to Finished Goods.
h. Production orders that had cost P480,000 to complete according to their job cost sheets were
shipped to customers during the month. These goods were sold on account at 25% above cost.
Compute the ending balance in Work-in process account, assuming that Work-in Process has a
beginning balance of P42,000.
a. P30,000 * b. P22,000 c. P70,000 d. P28,000

Questions 30 and 31 are based on the following:

Leeds Architectural Consultants began operation on January 2. the following activity was recorded in the
company’s Work in Process account for the first month of operations:
Work in Process
----------------------------------------------------------------------------------------------------------------------
Costs of subcontracted work 230,000 To completed projects 390,000
Direct staff costs 75,000
Studio overhead 120,000

Leeds Architectural Consultants is a service firm, so the names of the accounts it uses are different from
the names used in manufacturing firms. Cost of Subcontracted Work is comparable to Direct Materials;
Direct Staff Costs is the same as Direct Labor; Studio Overhead is the same as Manufacturing Overhead;
and Completed Projects is the same as Finished Goods. Apart from the difference in terms, the
accounting methods used by the company are identical to the methods used by manufacturing
companies.
Leeds Architectural Consultants uses a job-order costing system and applies studio overhead to
Work in Process on the basis of direct staff cots. At the end of January, only one job was still in process.
Theis job (Lexington Gardens Project) had been charged with P6,500 in direct staff cots.
30. Compute the predetermined overhead rate that was in use during January.
a. 160% of direct staff costs. * c. 52.17% of costs of subcontracted work
b. 62.5% of direct staff costs. d. 192% of costs of subcontracted work.
31. Determine the cost of subcontracted work charged to the job still in process.
a. P35,000 b. P28,500 c. P18,100 * d. P10,400

Questions 32 and 33 are based on the following:

Paul Claro is employed by Aerotech Products and assembles a component part for one of the company’s
product lines. He is paid P14 per hour for regular time and time and a half (i.e., P21 per hour) for all
work in excess of 40 hours per week.
32. Assume that during a given week Paul is idle for five hours due to machine breakdowns and that he is
idle for four more hours due to material shortages. No overtime is recorded for the week Allocate Paul’s
wages for the week between direct labor cost and manufacturing overhead cost.
a. Direct labor, P434; Factory overhead, P126 * c. Direct labor, P434; Factory overhead, P189
b. Direct labor, P560; Factory overhead, P0 d. Direct labor, P651; Factory overhead, P126
33. Assume that during the following week, Paul works a total of 48 hours. He has no idle time for the
week. Allocate Paul’s wages for the week between direct labor cost and manufacturing overhead cost.
a. Direct labor, P560; Factory overhead, P168 c. Direct labor, P672; Factory overhead, P0
b. Direct labor, P672; Factory overhead, P56 * d. Direct labor, P560; Factory overhead, P56

Questions 34 through 36 are based on the following:

The following data refer to Fresno Fashions Company for the year 20x2:
Sales revenue P950,000
Work-in-process inventory, 12/31/x2 30,000
Work-in-process inventory, 1/1/x2 40,000
 Selling and administrative expense 150,000
Income tax expense 90,000
Purchases of raw material 180,000
Raw-material inventory, 12/31/x2 25,000
Raw-material inventory, 1/1/x2 40,000
Direct labor 200,000
Utilities: plant 40,000
Depreciation: plant and equipment 60,000
Finished-goods inventory, 12/31/x2 50,000
Finished-goods inventory, 1/1/x2 20,000
Indirect material 10,000
Indirect labor 15,000
Other manufacturing overhead 80,000
34. Determine the cost of goods manufactured for 20x2.
a. P610,000 b. P580,000 c. P220,000 d. P600,000 *
35. Determine the cost of goods sold for 20x2.
a. P610,000 b. P580,000 c. P570,000 * d. P140,000
36. Determine the net income for 20x2.
a. P610,000 b. P580,000 c. P220,000 d. P140,000 *

**** Thought is creative, Fear attracts like energy, Love is all there is ****
**** THE END – GOOD LUCK ****
PRACTICAL ACCOUNTING 2 MAY 2007 BATCH
FIRST PRE-BOARD EXAMINATION JANUARY 21, 2006 (SUN) 1:30-3:30 PM.
INSTRUCTION: Choose the correct answer from the following problems by writing a vertical line on the
letter of your choice answer on the answer sheet provided. NO ERASURES ALLOWED. USE PENCIL NO. 1 ONLY.

1. Crunchem Cereal Company incurred the following actual costs during 20x5.
Direct materials used P275,000
Direct labor 120,000
Manufacturing overhead 252,000
The firm’s predetermined overhead rate is 210 percent of direct-labor cost. The January 1, 20x5
inventory balances were as follows:
Raw materials P30,000
Work in process 39,000
Finished goods 42,000
Each of these inventory balances was 10 percent higher at the end of the year.
What was the cost of goods sold for the year?
a. P635,900 b. P647,000 c. P638,900 * d. P655,100

2. Shawn Toy Company incurred the following costs to produce job number TB78, which consisted of 1,000
teddy bears that can walk, talk, and play cards.
Direct material:
4/1/x0 Requisition number 101: 400 yards of fabric at P8.00 per yard
4/5/x0 Requisition number 108: 500 cubic feet of stuffing at P3.00 per cubic foot
Direct labor:
4/15/x0 Time card number 72: 500 hours at P24 per hour
Manufacturing overhead:
Applied on the basis of direct-labor hours at P20 per hour.
On April 30, 700 of the bears were shipped to a local toy store.
Determine the cost of goods sold for job number TB78.
a. P26,700 b. P18,690 * c. P8,010 d. P10,680

3. The controller for Tender Bird Poultry, Inc. estimates that the company’s fixed overhead is P1,000,000
per year. She also has determined that the variable overhead is approximately P1.10 per chicken raised
and sold. Since the firm has a single product, overhead is applied on the basis of output units, chickens
raised and sold.
Calculate the predetermined overhead rate under each of the following output predictions: 200,000
chickens, 300,000 chickens, and 400,000 chickens.
a. P1.10; P1.10; P1.10, respectively. c. P6.10; P4.43; P3.60, respectively. *
b. P5.00; P3.33; P2.50, respectively. d. P3.90; P2.23; P1.40, respectively.

4. Design Arts Associates is an interior decorating firm in St. Louis. The following costs were incurred in the
firm’s contract to redecorate the mayor’s offices.
Direct materials P35,000
Direct professional labor 60,000
The firm’s budget for the year included the following estimates:
Budgeted overhead P4,000,000
Budgeted direct professional labor 2,500,000
Overhead is applied to contracts using a predetermined overhead rate calculated annually. The rate is
based on direct professional labor cost.
Calculate the total cost of the firm’s contract to redecorate the mayor’s offices.
a. P191,000 * b. P131,000 c. P132,500 d. P96,000

5. Hudson Bay Leatherworks, which manufactures saddles and other leather goods, has three
departments. The Assembly Department manufactures various leather products, such as belts, purses,
and saddlebags, using an automated production process. The Saddle Department produces handmade
saddles and uses very little machinery. The Tanning Department produces leather. The tanning process
requires little in the way of labor or machinery, but it does require space and process time. Due to the
different production processes in the three departments, the company uses three different cost drivers
for the application of manufacturing overhead. The cost drivers and overhead rates are as follows:
Cost driver Predetermine Overhead Rate
Tanning Department Square feet of leather P3 per square foot
Assembly Department Machine time P9 per machine hour
Saddle Department Direct-labor time P4 per direct-labor hour
 The company’s deluxe saddle and accessory set consists of a handmade saddle, two saddlebags, a belt,
and a vest, all coordinated to match. The entire set uses 100 square feet of leather from the Tanning
Department, 3 machine hours in the Assembly Department, and 40 direct-labor hours in the Saddle
Department.
Job number DS-20 consisted of 20 deluxe saddle and accessory sets.
Determine the total overhead applied to job number DS-20 in the Assembly Department?
a. P487 b. P9,740 c. P540 * d. P27

6. Charleston Jewelry Company uses normal costing, and manufacturing overhead is applied to work-in-
process on the basis of machine hour. On January 1, 20x2 there were no balances in work-in-process or
finished-goods inventories. The following estimates were included in the 20x2 budget.
Total budgeted manufacturing overhead P235,000
Total budgeted machine hours 47,000
During January, the firm began the following production jobs:
A79: 1,000 machine hours
N08: 2,500 machine hours
P82: 500 machine hours
During January, job numbers A79 and N08 were completed, and job number A79 was sold. The actual
manufacturing overhead incurred during January was P26,000.
How much must be the adjustment to cost of goods sold if the over or underapplied overhead is
immaterial in amount?
a. P6,000 increase * b. P6,000 decrease c. P26,000 increase d. no effect.

Questions 7 and 8 are based on the following:

Petrotech Company refines a variety of petrochemical products. The following data are from the firm’s
Mexico City plant.
Work in process, November 1 200,000 gallons
Direct materials 100% complete
Conversion 25% complete
Units started in process during November 950,000 gallons
Work in process, November 30 240,000 gallons
Direct materials 100% complete
Conversion 80% complete
7. Compute the equivalent units of direct material and conversion cost for the month of November using
weighted average method of process costing.
a. 1,150,000 and 1,102,000, respectively. * c. 950,000 and 1,052,000, respectively.
b. 1,102,000 and 1,150,000, respectively. d. 1,052,000 and 950,000, respectively.
8. Compute the equivalent units of direct material and conversion cost for the month of November using
the first-in, first-out method of process costing.
a. 1,150,000 and 1,102,000, respectively. c. 950,000 and 1,052,000, respectively. *
b. 1,102,000 and 1,150,000, respectively. d. 1,052,000 and 950,000, respectively.

9. The Portsmouth plant of Best Foods Corporation produces salad dressing. The following data pertain to 20x0.
Percentage of Completion
Units Direct materials Conversion
Work in process, January 1 20,000 pounds 80% 60%
Work in process, December 31 15,000 pounds 70% 30%
During the year the company started 120,000 pounds of material in production.
By what amount will the use of weighted average (WA) method be different from first-in, first-out
(FIFO) method in computing the equivalent units of production.
a. WA greater than FIFO by 16,000 for direct materials.
b. WA greater than FIFO by 12,000 for conversion costs.
c. No difference. WA same as FIFO.
d. Both (a) and (b) are correct. *

Questions 10 and 11 are based on the following:

Montana Lumber Company grows, harvests, and processes timber for use in construction. The following
data pertain to the firm’s sawmill during November.
Work in process, November 1:
Direct material P 65,000
Conversion 180,000
Costs incurred during November:
Direct material P425,000
Conversion 690,000
The equivalent units of activity for November were as follows:
Weighted average FIFO
Direct material 7,000 4,250
 Conversion 1,740 1,000
10. Calculate the cost per equivalent unit for both direct material and conversion cost, during the month of
November using the weighted average method of process costing.
a. Direct material, P70; Conversion cost, P500. *
b. Direct material, P115.29; Conversion cost, P870.
c. Direct material, P60.71; Conversion cost, P396.55.
d. Direct material, P100; Conversion cost, P690.
11. Calculate the cost per equivalent unit for both direct material and conversion cost, during the month of
November using the FIFO method of process costing.
a. Direct material, P70; Conversion cost, P500.
b. Direct material, P115.29; Conversion cost, P870.
c. Direct material, P60.71; Conversion cost, P396.55.
d. Direct material, P100; Conversion cost, P690. *

12. Calgary Glass Company manufactures window glass for automobiles. The following data pertain to the
Plate Glass Department.
Work in process, June 1:
Direct material P 37,000
Conversion 36,750
Costs incurred during June:
Direct material P150,000
Conversion 230,000
The equivalent units of activity for June were as follows:
Weighted average FIFO
Direct material 17,000 15,000
Conversion 48,500 46,000
What is the cost per equivalent unit last May for direct material and conversion cost?
a. Direct material, P18.50; Conversion cost, P14.70. *
b. Direct material, P11.00; Conversion cost, P5.50.
c. Direct material, P10.00; Conversion cost, P5.00.
d. Direct material, P12.47; Conversion cost, P5.80.

Questions 13 and 14 are based on the following:

The data below pertain to Birmingham Paperboard Company, a manufacturer of cardboard boxes.
Work in process, February 1 10,000 units
Direct material P 5,500
Conversion 17,000
Cost incurred during February:
Direct materials P110,000
Conversion 171,600
The equivalent units of activity for February were as follows:
Weighted average FIFO
Direct material 110,000 100,000
Conversion 92,000 88,000
During February, 90,000 units were completed and transferred out.
13. Using weighted average method of process costing, determine the cost of goods completed during
February.
a. P274,500 b. P279,000 * c. P278,200 d. P257,870
14. Using the FIFO method of process costing, determine the cost of February 28 work in process inventory.
a. P25,900 * b. P25,100 c. P29,600 d. P46,230

15. On January 1, 20x2 the Molding Department of Portland Plastic Company had no work-in-process
inventory due to the implementation of a just-in-time inventory system. On January 31, the following
journal entry was made to record the cost of goods completed and transferred out of the Molding
Department.
Finished Goods Inventory P176,000
Work-in-Process Inventory: Molding Department P176,000
The company uses weighted average process costing.
What would the amount have been in the journal entry above if Portland Plastic Company had used the
FIFO method of process costing?
a. Lower than P176,000. c. Same as P176,000. *
b. Higher than P176,000. d. Cannot be determined.

Questions 16 and 17 are based on the following:

Knickknack, manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate
based on direct labor hours. Production and product costing data are as follows:
Odds Ends
 Production quantity 1,000 units 5,000 units
Direct material P 40 P 60
Direct labor (not including setup time) P 30 (2 hrs at P15) P 45 (3 hrs at P15)
Manufacturing overhead P 96 (2 hrs at P48) P144 (3 hrs at P48)
Total cost per unit P166 P249
Knickknack, Inc. prices its products at 120 percent of cost, which yields target prices of P199.20 for odds
and P298.80 for ends. Recently, however, knickknack has been challenged in the market for ends by a
European competitor, Bricabrac Corporation. A new entrant in this market, Bricabrac has been selling
ends for P220 each. Knickknack’s president is puzzled by Bricabrac’s ability to sell ends at such a low
cost. She has asked you (the controller) to look into the matter. You have decided that Knickknack’s
traditional, volume-based product-costing system may be causing cost distortion between the firm’s two
products. Ends are a high-volume, relatively simple product. Odds, on the other hand, are quite complex
and exhibit a much lower volume. As a result, you have begun work on an activity-based costing
system.
Activity Cost Pool Budgeted Overhead Cost Driver Budgeted level of Cost Driver
Machine related costs P450,000 Machine hours 9,000 hrs.
Setup and inspection 180,000 Number of production runs 40 runs
Engineering 90,000 Engineering change orders 100 change orders
Plant-related costs 96,000 Square footage of space 1,920 sq. ft.
P816,000
You have gathered the following additional information:
 Each odd requires 4 machine hours, whereas each end requires 1 machine hour.
 Odds are manufactured in production runs of 50 units each. Ends are manufactured in 250 unit
batches.
 Three quarters of the engineering activity, as measured in terms of change orders, is related to
odds.
 The plant has 1,920 square feet of space, 80 percent of which is used in the production of odds.
16. Compute the new product cost per unit for odds and ends, using the ABC system.
a. Odds, P181.34; Ends, P504.30 c. Odds, P434.30; Ends, P76.34.
b. Odds, P504.30; Ends, P181.34 * d. Odds, P76.34; Ends, P434.30.
17. Using the same pricing policy as in the past, compute the target prices for odds and ends using ABC
system.
a. Odds, P217.608; Ends, P605.16 c. Odds, P521.16; Ends, P91.608
b. Odds, P605.16; Ends, P217.608 * d. Odds, P91.608; Ends, P521.16.

Questions 18 through 20 are based on the following:

AltiCorp, Ltd. Manufactures a special valve in the burns of hot air balloons. The firm uses the first-in,
first-out (FIFO) process-costing method for product costing. The costs entered into Work-in-Process
Inventory are standard costs, based on standard set annually. The standards for direct material and
direct labor, which are based on equivalent units of production, are as follows:
Direct material per unit 1 pound at P10 per pound
Direct labor per unit 2 hours at P12 per hour
The following data pertain to the month of April.
(1) The beginning inventory consisted of 2,500 units, which were 100 percent complete as to direct
material and 40 percent complete as to direct labor.
(2) An additional 10,000 units were started during the month.
(3) The ending inventory consisted of 2,000 units, which were 100 percent complete as to direct
material and 40 percent complete as to direct labor.
(4) Costs applicable to April production are as follows:
Actual Cost Standard Cost
Direct material purchased and used (11,000 pounds) P121,000 P100,000
Direct labor (25,000 hours actually worked) P316,725 P247,200
18. The entry to record purchases of raw materials under standard costing system must be:
a. Materials Inventory 121,000
Accounts Payable 100,000
Material Purchase Price Variance 21,000

b. Materials Inventory 121,000

Accounts Payable 121,000

c. Materials Inventory 100,000

Materials Purchase Price Variance 21,000
Accounts Payable 121,000

d. Materials Inventory 110,000

Materials Purchase Price Variance 11,000
Accounts Payable 121,000 *
19. The entry to record issuance of raw materials to production under standard costing system must be:
a, Work in Process Inventory 100,000
Materials Quantity Variance 10,000
Materials Inventory 110,000 *

b. Work in Process Inventory 110,000

Materials Quantity Variance 11,000
Materials Inventory 121,000

c. Work in Process Inventory 121,000

Materials Inventory 100,000
Materials Quantity Variance 21,000

d. Work in Process Inventory 100,000

Materials Quantity Variance 21,000
Materials Inventory 121,000

20. The entry to distribute the payroll under standard costing system must be:
a. Work in Process Inventory 247,200
Labor Efficiency Variance 52,800
Labor Rate Variance 16,725
Payroll 316,725 *

b. Work in Process Inventory 316,725

Payroll 316,725

c. Work in Process Inventory 247,200

Payroll 247,200

d. Work in Process Inventory 316,725

Payroll 247,200
Labor Efficiency Variance 52,800
Labor Rate Variance 16,725

21. Able Control Company, which manufactures electrical switches, uses a standard costing system. The
standard manufacturing overhead costs per switch are based on direct-labor hours and are as follows:
Variable overhead (5 hours at P8.00 per hour) P 40
Fixed overhead (5 hours at P12.00 per hour) * 60
Total overhead P100
* Based on capacity of 300,000 direct-labor hours per month.
The following information is available for the month of October.
 56,000 switches were produced, although 60,000 switches were scheduled to be produced.
 275,000 direct-labor hours were worked at a total cost of P2,550,000.
 Variable overhead costs were P2,340,000.
 Fixed overhead costs were P3,750,000.
Determine the applied factory overhead.
a. P5,600,000 * b. P6,000,000 c. P6,090,000 d. P5,500,000
The entry to record the two overhead variance must be:
a. Applied Factory Overhead P6,000,000
Controllable Variance 250,000
Volume Variance 240,000
Factory Overhead Control P6,490,0000

b. Applied Factory Overhead P5,600,000

Controllable Variance 250,000
Volume Variance 240,000
Factory Overhead Control P6,090,000 *

c. Applied Factory Overhead P6,090,000

Factory Overhead Control P5,600,000
Controllable Variance 250,000
Volume Variance 240,000

d. Applied Factory Overhead P5,500,000

Controllable Variance 250,000
Volume Variance 340,000
 Factory Overhead Control P6,090,000

Questions 22 through 25 are based on the following:

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products
developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A
standard production run incurs joint costs of P300,000 and results in 60,000 units of MSB and 90,000
units of CBL. Each MSB sells for P2.00, and each CBL sells for P4.00.
22. Calculate the amount of joint cost allocated to CBL on a physical-units basis.
a. P120,000 b. P180,000 * c. P75,000 d. P225,000
23. Calculate the amount of joint cost allocated to MSB on a relative-sales-value basis.
a. P120,000 b. P180,000 c. P75,000 * d. P225,000
24. Assume the CBL is not marketable at split-off but must be further planed and sized at a cost of P200,000
per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no
value. The remaining units of CBL are saleable at P10 per unit. The MSB, although saleable immediately
at the split-off point, are coated with a tarlike preservative that costs P100,000 per production run. The
MSB are then sold for P5 each. Using the net-realizable-value basis, compute the completed cost
assigned to each unit of CBL.
a. P5.3125 * b. P2.9167 c. P4.7222 d. P4.8148
25. If Sonimad Sawmill chose not to process the MSB beyond the split-off point, the share from the joint
milling process would increase or decrease by what amount?
a. Increase by P100,000. c. Increase by P25,000.
b. Decrease by P100,000. d. Decrease by P25,000. *

Questions 26 through 28 are based on the following:

The controller of Yorktown Corporation instructs the cost supervisor to distribute the service
department’s costs to producing departments. There are three service departments, and each receives
services from the other two. After all factory overhead is distributed among the producing and service
departments, the account balances and the interdependencies of service departments were tabulated as
follows:
Department Overhead
Before Distribution of Services Provided General
Department Service Departments Powerhouse Personnel Factory
Mixing P200,000 25% 35% 25%
Refining 90,000 25 30 20
Finishing 105,000 20 20 20
Powerhouse 16,000 - 10 20
Personnel 29,500 10 - 15
General Factory 42,000 20 5 -
P482,500 100% 100% 100%
26. Using the direct method of allocating service departments costs to producing departments, determine
the total factory overhead of Mixing department after allocation of service department costs.
a. P234,015 * b. P119,049 c. P129,436 d. P482,500
27. Using the step method of allocating service departments costs to producing departments, determine the
total factory overhead of Refining department after allocation of service department costs. (Powerhouse
is allocated first, personnel is second and general factory last).
a. P234,144 b. P118,806 * c. P129,550 d. 482,500
28. Using the reciprocal method of allocating service departments costs to producing departments,
determine the equation to get the total factory overhead of Finishing department after allocation of
service department costs.
a. P200,000 + 25%(Po) + 35%(Pe) + 25%(GF).
b. P90,000 + 25%(Po) + 30%(Pe) + 20%(GF).
c. P105,000 + 20%(Po) + 20%(Pe) + 20%(GF). *
d. P105,000 +25%(Po) + 25%(Pe) + 20%(GF).

29. The following events pertain to Barracuda Beach Wear, Inc. during June, 20x2.
1. Raw material costing P180,000 was purchased on account.
2. Direct-labor costs of P65,000 were incurred, but not yet paid in cash. Actual manufacturing
overhead costs of P105,000 also were incurred, but not yet paid in cash.
3. Goods with raw material costs of P180,000 were finished, and conversion costs of P170,000
were applied.
4. Goods costing P348,000 were sold on account for P420,000.

Prepare the entry to record the no. 3 transaction using backflush costing.
a. Work in Process Inventory 350,000
Materials Inventory 180,000
Conversion Costs Applied 170,000
 b. Finished Goods Inventory 350,000
Raw and In Process Inventory 180,000
Conversion Costs Applied 170,000 *

c. Finished Goods Inventory 350,000

Materials Inventory 180,000
Conversion Costs Applied 170,000

d. Work in Process Inventory 350,0000

Raw and In Process Inventory 180,000
Conversion Costs Applied 170,000

Questions 30 through 32 are based on the following:

The SL Manufacturing Company produces items made to order and uses a job order cost system to
record and distribute costs. The following information applies to job 86 for 30,000 units.
Cost of normal spoilage (500 units) (assume normal spoilage was ignored
in the computation of the factory overhead application rate) P200,000
Cost of abnormal spoilage (100 units) P 40,000
Salvage value of spoiled units P100 per unit
Cost of reworking defective units (required only labor; assume normal
rework costs were ignored in the computation of the factory overhead
application rate) P50 per unit
Normal defective units 140
Abnormal defective units 20
Cash received from sale of scrap materials (assume scrap was ignored in the
computation of the factory overhead application rate) P3,000
Cost of disposing of waste materials (assume the cost of disposing of waste
was included in the factory overhead application rate) P400
Prepare the entries to record:
30. Determine the cost charged to expense for normal and abnormal spoilage.
a. P200,000 b. P40,000 c. P240,000 d. P30,000 *
31. Determine the amount charged to factory overhead control for cost of rework of normal and abnormal
defective units.
a. P7,000 b. P1,000 * c. P8,000 d. none
32. To what account does the sale of scrap most likely credited?
a. Sales b. Cost of sales c. Work in Process * d. FOC

33. The following cost and inventory data are taken from the accounting records of Malusog Company for
the year completed:
Costs incurred:
Direct labor cost P 70,000
Purchases of raw materials 118,000
Indirect labor 30,000
Maintenance, factory equipment 6,000
Advertising expense 90,000
Insurance, factory equipment 800
Sales salaries 50,000
Rent, factory facilities 20,000
Supplies 4,200
Depreciation, office equipment 3,000
Depreciation, factory equipment 19,000
Beginning of the year End of the year
Inventories:
Raw materials P 7,000 P 15,000
Work in process 10,000 5,000
Finished goods 20,000 35,000
Determine the cost of goods sold shown in the income statement during the year.
a. P265,000 b. P250,000 * c. P260,000 d. P300,000

34. Elaine Corporation, located in London, UK, has collected the following data on the costs of electricity and
machine hours for the last three months of 20x7:
Cost of electricity Machine hours
October ₤170,000 3,000
November 220,000 4,000
December 120,000 2,000
The production manager thinks that a pattern exist for electricity costs. Determine the cost function.
a. ₤20,000 + 5(x) c. ₤10,000 + 5(x)
 b. ₤20,000 + 50(x) * d. ₤10,000 + 50(x)

35. The Jake Department is the first of a two-stage production process. Spoilage is identified when the units
have completed the Jake process. Spoilage were cause by defect in the internal control thus, are
charged to factory overhead control. The following information concerns Jake’s conversion costs in May
20x7:
Units Conversion costs
Beginning work in process (50% complete) 2,000 P10,700
Units started during May 8,000 74,800
Spoilage - abnormal 500
Units completed and transferred 7,000
Ending work in process (80% complete) 2,500
Using the weighted average method, what was Jake’s cost of abnormal loss?
a. P4,400 b. P4,500 * c. P5,000 d. P4,000