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:
Machine hours per unit
Direct labor hours per unit
Units produced
Total machine hours
Product L
2
4
1,000
2,000
Product H
2
4
10,000
20,000
Total direct labor hours
Number of purchase orders
Number of set-ups
The overhead cost of the activities is as follows:
Volume-related
Purchasing-related
Set-up-related
Total overhead cost
4,000
80
40
40,000
160
60
P 110,000
120,000
210,000
P 440,000*
(a) Traditional costing system:
Overhead rate per machine hour (P440,000/22,000 hours)
Overhead rate per direct labor hour (P440,000/44,000 hours)
Cost per unit of:
Product L – based on machine hours (2 hrs x P20)
Product H – based on direct labor hours (4 hrs x P10)
P20
P10
P40
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 f or 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
Materials and in process
2. use of combined raw 2. two trigger point
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
Conversion costs for the period
Number of units manufactured
Number of finished units sold
P195,000
120,000
10,000 units
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)
Accounts payable
195,000
195,000
(b) Incur conversion costs
Conversion costs
Various accounts
120,000
120,000
(c) Completion of finished goods
(10,000units x P31 = P310,000)
Finished goods
310,000
Raw and in process (RIP)
190,000
Conversion costs
120,000
(d) Cost of goods sold
(9,900 units x P31 = P306,900)
Cost of goods sold
Finished goods
306,900
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 (120,000118,800)conversion costs is closed to Cost of goods sold account.
608
Practical Accounting - 2
Method 3: Two Trigger Points
Transactions
(a) Purchase of raw materials
Journal Entries
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 doesn’t 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
Activity Area
Budgeted
Cost for 2013
Cost Driver used
as Allocation Base
Cost-allocation
rate
Materials Handling
Cutting
Assembly
P200,00
2,000,000
2,000,000
Parts
Parts
direct labor hours
P0.25
2.50
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:
Units
Produced
Direct
Materials
Costs
Number
of Parts
Direct
Manufacturing
Labor hours
High school chair 5,000
College chair
100
P600,000
25,000
100,000
3,500
7,500
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 Pool
1. Material handling
2. Machining
3. Assembly
4. Inspection
Cost-Allocation
base
Budgeted CostAllocation rate
Component parts
machine- hours
assembly-hours
inspection-hours
P8 per part
P68 per hour
P75 per hour
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 Company’s previous costing system had one direct-cost category (direct
materials) and one indirect-cost category (manufacturing overhead allocated at t herate
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.
b.
c.
d.
P114,850 higher
P141,850 lower
P114,950 higher
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
Material handling
Setup costs
Machine costs
Quality control
Cost Driver
No. of parts handled
No. of setups
Machine hours
No. of batches
Budgeted Activity
6,000,000
750
30,000
500
Budgeted Cost
P720,000
315,000
540,000
225,000
Cost, sales, and production data for one of the company’s product for the coming y ear
are as follows:
Prime Costs:
Direct material cost per unit
Direct labor cost per unit, .05 direct labor
hour@P15 per hour
Sales and production data:
Expected sales
Batch size
P4.40
0.75
20,000 units
5,000 units
Setups
Total parts per finished unit
Machine hours required
2 per batch
5 parts
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.
b.
c.
d.
P6.00
P6.08
P6.21
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.
b.
c.
d.
P686.40 per order
5,255 higher than the traditional costing system
P85,000.5
P5,255 lower than the traditional costing system
5. Yokomo Inc. accumulated the following cost information for its products, A and B.
Units produced
Total direct labor hours
Set-up cost per batch
Batch size
Total setup cost incurred
Direct labor hour per unit
Product A
2,000
5,000
P1,000
100
P20,000
2
Product B
1,000
20,000
P2,000
50
P40,000
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
P4.80
P2.40
P40.00
P4.80
a.
b.
c.
d.
ABC
P10
P10
P200
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.
b.
c.
d.
P6
P2
P60
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.
Activity Center
Cost Driver
Amount
of activity
Material handling
Painting
Assembly
Kilos handled
Units painted
Labor hours
100,000 grams
50,000 units
4,000 hours
Center Costs
P50,000
200,000
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.
b.
c.
d.
P31,955
P27,750
P26,000
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:
Units produced
Material moves per product line
Direct labor hours per unit
Budgeted materials handling costs
Wall
Mirrors
25
5
200
P50,000
Specialty
Windows
25
15
200
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.
b.
c.
d.
P1,000
P500
P2,000
P5,000
9. Under activity based costing (ABC), what is the materials handling costs allocated to
one unit of wall mirrors?
a.
b.
c.
d.
P1,000
P500
P1,500
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.
b.
c.
d.
P80,500
P78,500
P83,050
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
Raw materials used
Conversion cost incurred
Conversion allocated to finished goods
Costs transferred to finish goods
Cost of goods sold
P880,000
850,000
422,000
400,000
1,250,000
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
Conversion costs incurred
Raw materials purchased
Conversion costs allocated
Ending balance of RIP account
P38,700
4,800
680,000
5,300
41,900
The amount of direct materials and conversion costs to backflushed to finished goods
are:
a.
b.
c.
d.
P676,800 and P4,800 respectively
P680,000 and P4,800 respectively
P676,800 and P5,300 respectively
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
Action’s 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
Conversion costs incurred
Number of finished units manufactured
Number of finished units sold
P550,000
P440,000
21,000
20,000
The balance of raw and in process and finished goods inventory accounts at the
end of May are:
a.
b.
c.
d.
P25,000 and P945,000 respectively
P550,00 and P45,000 respectively
P25,000 and P45,000 respectively
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 S hop 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 Shop’s 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
Conversion costs incurred
Number of finished units manufactured
Number of finished units sold
P5,300,000
3,080,000
200,000
192,000
The balances of Raw and in process and cost of goods sold accounts at the end of June
are:
a.
b.
c.
d.
P308,000 and P7,872,000 respectively
P5,300,000 and P7,872,000 respectively
P308,000 ad P4,992,000 respectively
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
Raw materials received on credit
Ending RIP inventory per physical count, including
P1,800 conversion cost estimate
P31,000
367,000
33,000
What is the amount of materials used to be backflushed from RIP to finished goods?
a.
b.
c.
d.
P365,000
P368,600
P367,000
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
Raw materials received on credit
Ending RIP inventory per physical count, including
P2,100 conversion cost estimate
P12,300
246,000
12,100
What is the amount of raw materials used to be backflushed from RIP to cost of goods
sold?
a.
b.
c.
d.
P246,000
P246,200
P247,000
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.
b.
c.
d.
P305,000 over-allocated
P195,000 under-allocated
P105,000 over-allocated
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.
b.
c.
d.
P1,300,000
P1,495,000
P1,600,000
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
Beginning balance of finished goods account,
P29,250
Including P10,000 of conversion costs
Raw materials received on credit
Direct labor cost, P375,000; factory overhead applied,
P450,000
Ending RIP inventory per physical count, including
P4,500 of conversion costs
Ending finished goods inventory per physical count,
Including P8,750 of conversion costs
30,000
562,500
825,000
32,000
26,250
What is the conversion costs of units sold in June?
a.
b.
c.
d.
P825,250
P825,000
P840,000
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.
b.
c.
d.
P205,000
P200,000
P225,000
P200,000
ANSWERS
1. d
2. a
3.d
4.b
5. a
6. d
7. c
8. a
9.b
10. a
11. a
12. c
13. c
14. a
15. d
16. c
17. c
18. c
19. d
20. a
SOLUTIONS AND EXPLANATIONS
1. High school chair:
Direct materials
Direct labor (7,500xP20)
Overhead:
Material handling (100,000xP0.25)
P600,000
150,000
P25,000
Cutting (100,000x2.50)
Assembly (7,500xP25)
Total cost
Units produced
Unit cost
250,000
187,500
462,500
P1,212,500
/5,000
P242.50*
College chair:
Direct materials
Direct labor (500xP20)
Overhead:
Material handling (3,500xP0.25)
Cutting (3,500xP2.50)
Assembly (500xP25)
Total cost
Units produced
Unit cost
2. Traditional costing system:
P25,000
10,000
P875
8,750
12,500
Direct materials (50xP3,000)
Overhead (50x15)xP100
Total cost
22,125
P57,125
/100
P571.25*
P150,000
75,000
P225,000
Activity based costing system:
Direct materials
Overhead:
Materials handling (50x50)xP8
Machining (50x12)xP68
Assembly (50x15)xP75
Inspection (50x14)xP104
P150,000
20,000
40,800
56,250
72,800
Higher
P339,850
P114,850*
3. Overhead rates:
Material handling (P720,000/6,000,000 parts)
Setup costs (P315,000/750 setups)
Machining costs (P540,000/30,000 hours)
Quality control activity (225,000/500 batches)
P0.12
420
18.00
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
Overhead cost per unit (P22,920/20,000 units)
Direct material cost per unit
Direct labor cost per unit
Total unit cost
P22,920*
P1.15
4.40
0.75
P6.30*
4. ABC:
Material handling (115x12)
P1,380
Inspection (P1.40x17,500)
24,500
Production certification (P770x25)
19,250
Traditional costing (P275,000x14.5%)
ABC higher than the traditional costing by
5. Traditional costing [(60,000/25,000)x2 direct labor hours)]
ABC (P1,000/100)
6.
Overhead charge using labor hours: P60x200
Overhead charge using machine hours: P12,000-P4,000
Ratio of overhead costs to machine set-ups
P8,000/2,000
7. Cost Assignment:
Materials handling (P50,000/100,000)x10,000
Painting (P200,000/50,00)x3,000
Assembly (P120,000/4,000)x300
Total
P45,130
39,875
p5,255*
P4.80*
P10.00*
P12,000
P8,000
P4/set-up
P5,000
12,000
9,000
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 o f 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
Applied overhead:
Machine hours (70xP250)
Setup (4xP1,750)
Total cost of Job RST
P56,000
P17,500
7,000
24,500
P80,500*
11.
Raw materials purchased (debit to RIP)
Raw materials used (credit to RIP)
Balance of RIP
P880,000
850,000
P30,000*
12.
RIP account, beginning balance
Raw materials purchased
RIP account, ending balance
Direct materials to be backflushed
Conversion costs allocated to be backflushed
P38,700
680,000
(41,900)
P676,800*
P5,300*
13.
Raw materials purchased – Dr. to RIP
Direct materials to be backflushed – Cr. To RIP (21,000xP25)
Balance of RIP account
P550,000
525,000
P25,000*
Cost of completed units (21,000 units xP45)
Cost of goods sold (20,000 units xP45)
Balance of finished goods inventory account
P945,000
900,000
P45,000*
Raw materials purchased – Dr. to RIP
Direct materials to be backflushed (192,000 units x P26)
- Cr. To RIP
Balance of RIP
P5,300,000
Cost of goods sold (192,000 units xP41)
P7,872,000*
Materials in begging in balance of RIP account (P31,000-P1,400)
Add materials received on credit
Total
Less materials in ending balance of RIP account (P33,000-P1,800)
P29,600
367,000
396,600
31,200
14.
15.
4,992,000
P308,000*
Materials used to be backflushed from RIP to finished goods
P365,400*
16.
Materials in beginning balance or RIP account (P12,300-P1,300)
Add raw materials received on credit
Total
Less materials in ending balance of RIP account (P12,100-P2,100)
Materials used to be backflushed form RIP to cost of goods sold
P11,000
246,000
257,000
10,000
P247,000*
17.
Actual factory overhead
Direct labor cost incurred
Total actual conversion costs
Conversion costs allocated to production
Over-allocated conversion costs
P995,000
200,000
1,195,000
1,300,000
P105,000*
18.
Materials used to be backflushed from RIP to cost of goods sold
Applied conversion costs to production
Cost of goods sold balance, October 31
P300,000
1,300,000
P1,600,000*
19.
Total conversion costs
Adjustments: increase in conversion costs in RIP
(P4,500-P3,000)
Decrease in conversion costs in FG
(P10,000-P8,750)
Conversion costs of units sold in June
P825,000
1,250
P824,750*
Raw materials backflushed from RIP account
Materials in RIP inventory, June 30
Materials in RIP inventory, June 1
Raw materials purchased on credit during June
P202,500
12,500
(10,000)
P205,000*
20.
(1,500)