STRATEGIC COST MANAGEMENT
ACTIVITY 1
Answer the following problems:
1. Q Paints makes quality paint in one production department. Production begins with the
blending of various chemicals, which are added at the beginning of he process and ends with
canning of the paint. Canning occurs when the mixture reaches the 90 percent stage of
completion. The gallon cans are then transferred to the Shipping Dept. for crating and shipment.
Labor and overhead are added continuously throughout the process. Factory overhead is
applied at the rate of P3 per direct labor hour.
Prior to May, when a change in the process was implemented, work in process inventories were
insignificant. The change in process enables more production but results in large amounts of
work In process. The company has always used the weighted average method to determine
equivalent production and unit costs. Now, production management is considering changing
from weighted average method to the first-in, first-out method.
The following data relate to actual production during May:
Work in Process Inventory, May 1
Direct Material- chemicals
Direct Labor (P10 per hour)
Factory Overhead
PP45,100
5,250
1,550
Costs for May
Direct Material - chemicals
Direct Material -cans
Direct Labor (P10 per hour)
Factory Overhead
P228,900
7,000
35,000
11,000
Units for May (Gallon)
Work in Process Inventory, May 1 (25% complete) 4,000
Sent to Shipping Dept.
20,000
Started in May
21,000
Work in Process Inventory, May 31 (80%complete) 5,000
Required:
a. Prepare a cost of production report for May using the WA method
b. Prepare a cost of production report for May using the FIFO Method
2. In a single production system, P Company produces gloves. For November 2022, the company’s
accounting records reflected the following:
Beginning work in process inventory (100%complete as to DM; 30% COMPLETE AS TO DL and
60% complete as to overhead)
12,000 units
Units started during the month
90,000 units
Ending WIP Inventory (100%complete as to DM, 40% complete as to DL and 80%complete as to
overhead
20,000 units
Cost compenent:
Nov. 1 Direct Material
P13,020
Direct Labor
1,908
Overhead
During November
DM
DL
Overhead
Required:
1. Cost of ProductionReport, WA method
2. Cost of Production Report FIFO Method
P4,636
P90,000
45,792
70,824