Cost Accounting and Control 2019 Edition
Problem and Solutions
CHAPTER 5 – Activity Based Costing
EXERCISES
Ex 5-1. ABC method
The Sanka Company manufactures a variety of expensive furniture. Its job costing system was designed using an activity
based approach/ There are two direct cost categories (direct materials and direct labor) and three indirect cost pools.
These three cost pools represent three activity areas at the plant.
Activity Area
Materials handling
Cutting
Assembly
Budgeted OH
P200,000
P2,160,000
P2,000,000
Cost driver
Parts
Parts
DLH
Pool rate
P2.5
P25.00
P250.00
Two styles of cabinets were produced in May, De Luxe and Standard. Their quantities, direct material costs and other data
for May 2010 are as follows:
Production
5,000
100
Standard
De Luxe
DM cost
P3,500,000
P400,000
# of parts
100,000
3,500
DL Hours
7,500
1,500
The direct labor rate is P50 per hour. Assume no beginning inventory and ending inventory is 20% of total production.
Required: Determine the total manufacturing cost for each product using ABC.
Standard
Overhead:
Materials handling
Cutting
Assembly
(100,000 x 2.5)
(100,000 x 25)
(7,500 x 250)
Direct Materials:
Direct Labor:
250,000
2,500,000
1,875,000
4,625,000
3,500,000
(7,500 x 50)
DM
DL
OH
TMC
375,000
Overhead:
Materials handling
Cutting
Assembly
Direct Materials:
Direct Labor:
3,500,000
375,000
4,625,000
8,500,000
Standard
Deluxe
Ending Inventory
De Luxe
(3.500 x 2.5)
(3,500 x 25)
(1,500 x 250)
400,000
(1,500 x 50)
DM
DL
OH
TMC
8,500,000
946,250
9,446,250
x.20
1,889,250
8,750
87,500
375,000
471,250
75,000
400,000
75,000
471,250
946,250
Cost Accounting and Control 2019 Edition
Problem and Solutions
Ex 5-2. ABC and Conventional Method
The Accountant of Camera Film Company has established the following activity cost of pools and cost drivers”
Activity
Machine set ups
Materials hand
Hazardous waste control
Quality control
Other overhead costs
Budgeted
OH
P200,000
100,000
50,000
75,000
200,000
Cost driver
No. of set ups
Weight of Raw Materials
Weight of Hazardous chemicals used
Number of inspections
Machine hours
Budgeted
level
100
50,000 lbs.
10,000 lbs
1,000
20,000 hrs.
Pool rate
P2,000 / set up
P2 / lb.
5 / lb.
P75 / inspection
P10 / mhr.
An order for 2,000 boxes of film development chemicals has the following production requirements:
Machine set ups
Raw materials
Hazardous materials
Inspections
Machine hours
4
10,000 pounds
2,000 pounds
20
500
Direct manufacturing cost actually incurred to produce 2,000 boxes are Direct materials of P425,000 and direct labor of
P400,000.
Before the company adopts the ABC approach of costing, the traditional approach of allocating overhead, which is based
on machine hours, is being used.
Required:
a. Determine the amount of overhead applied to each box of chemical under ABC and traditional costing
b. Determine the manufacturing cost per box under ABC and traditional method
a.
Traditional Costing
620,000 / 20,000 = 31.25
31.25 x 500 = 15,625 / 2,000 = P7.81 per box
Machine set ups
Raw materials
Hazardous
materials
Inspections
Machine hours
Total overhead
ABC Costing
4 x 2,000
10,000 x 2
2,000 x 5
20 x 75
500 x 10
8,000
20,000
10,000
1,500
5,000
44,500
/2,000
P22.5
per box
b.
Traditional Costing
Direct Materials
Direct Labor
Overhead
Total Manufacturing Costs
Divided by:
Manufacturing cost per unit
ABC Costing
425,000
400,000
15,625
840,625
/2,000
P420.31
per box
Direct Materials
Direct Labor
Overhead
Total Manufacturing Costs
Divided by:
Manufacturing cost per unit
425,000
400,000
44,500
869,500
/2,000
P434.75
per box
Cost Accounting and Control 2019 Edition
Problem and Solutions
Ex. 5-3. Computing unit costs using ABC
ABC Company has budgeted 84,000 machine hours in the production of 3 product lines for the coming year. Other
budgeted information is summarized below:
Machine related costs
Materials receiving order costs
Production orders / Engineering costs
Production run / Set up costs
Inspection costs
P2,520,000
1,255,680
1,080,000
112,200
576,000
The following is a summary of actual data for the current year:
Units produced
Production costs per unit
Materials
Direct labor
MH required per unit
Activities per product line
Receiving orders
Production orders
Set up
Inspections
P1
28,000
P2
18,000
P3
6,000
P60
36
1.5
P45
42
2
39
30
1
48
42
12
24
120
36
24
12
600
57
66
80
Required: Determine the following:
1. Overhead applied to each product line
2. Total manufacturing cost per product line
Machine related costs
Materials receiving order costs
Production orders / Engineering costs
Production run / Set up costs
Inspection costs
Overhead
Machine related costs:
P1: 560,000 x 1.5
P2: 560,000 x 2
P3: 560,000 x 1
Materials receiving order costs:
P1: 1,635 x 48
P2: 1,635 x 120
P3: 1,635 x 600
Production orders / Engineering costs:
P1: 8,000 x 42
P2: 8,000 x 36
P3: 8,000 x 57
Production run / Set up costs:
P1: 1,100 x 12
P2: 1,100 x 24
P3: 1,100 x 66
Inspection costs:
P1: 6,000 x 24
P2: 6,000 x 12
P3: 6,000 x 60
Total Overhead
Divided by: units produced
Applied OH to each product
(2,520,000 / 4.5)
(1,255,680 / 768)
(1,080,000 / 135)
(112,200 / 102)
(576,000 / 96)
P1
=
=
=
=
=
P2
560,000
1,635
8,000
1,100
6,000
P3
840,000
1,120,000
560,000
78,480
196,200
981,000
336,000
288,000
456,000
13,200
26,400
72,600
144,000
72,000
1,411,680
/28,000
50.42
1,702,600
/18,000
94.59
360,000
2,429,600
/6,000
404.93
Cost Accounting and Control 2019 Edition
Problem and Solutions
Direct Labor
Direct materials
Overhead
Total Manufacturing Costs
Divided by units produced
Manufacturing costs per product
P1
1,680,000
1,008,000
1,411,680
4,099,680
/28,000
P146.42
P2
810,000
756,000
1,702,600
3,268,600
/18,000
P181.59
P3
234,000
180,000
2,429,600
2,843,600
/6,000
P473.93
Ex. 5-4. Traditional Costing Method
Trinoma, Inc. provides the following information concerning its two product lines:
Units produced
Machine set up hours per product line
Direct labor hours per unit
Total budgeted machine set up related
costs – P180,000
Product 1
2,500
150
10
Product 2
500
150
10
Required: Answer the following:
1. How much machine set up related cost id allocated to each product line if Trinoma Inc. uses a traditional cost
allocation based on direct labor hours?
2. What is the conversion cost per unit of Product 1 and Product 2
180,000
=P 6
30,000
Product 1: 25,000 x 6 = P150,000
Product 2: 5,000 x 6 = 30,000
Cost Accounting and Control 2019 Edition
Problem and Solutions
TEST MATERIAL 1. MULTIPLE CHOICE
1. A costing system in which multiple overhead allocating using one or more non-volume related factors is called
a. Normal Costing
c. Backflush Costing
b. Actual Costing
d. Activity Based Costing
2. What is the normal effect on the numbers of cost of pools and allocation bases when an activity based cost (ABC)
system replaces a traditional cost system?
Cost Pools
Allocation bases
a. No effect
No effect
b. Increase
No effect
c. No effect
Increase
d. Increase
Increase
3. In an activity-based costing system, what should be used to assign a department’s manufacturing overhead costs to
products produced in varying lot sizes
a. A single cause and effect relationship
b. Multiple cause and effect relationships
c. Relative net sales values of the products
d. A product’s ability to bear cost allocations
4. In an activity-based costing system, cost reduction is accomplished by identifying and eliminating
All cost drivers
Non-value adding activities
a. No
No
b. Yes
Yes
c. No
Yes
d. Yes
No
5. Activity Based Costing
a. Can be used only in a process cost system
b. Focuses on units of production
c. Focuses on activities performed to produce a product
d. Uses only a single basis of allocation
6. Activity based costing:
a. Is the initial phase of converting to a just in time operating environment
b. Can be used only in a job order costing system
c. Is a two-phased overhead cost allocation system that identifies activity cost pools and cost drivers
d. Uses direct labor as its primary cost driver
7. Any activity that causes resources to be consumed is called:
a. Just in time activity
b. Facility level activity
c. Cost driver
d. No value added activity
8. HP Company manufactures products X and Y, applying overhead on the basis of direct labor hours. X requires a
variety of complex manufacturing procedures and consumes significant productive resources. Y on the other hand is
relatively simplistic in nature. What would an activity based costing system likely disclose about products X and Y as a
result of HP’s current accounting process?
Product X
Product Y
Product X
Product Y
a. Undercosted
Undercosted
Undercosted
Overcosted
b. Overcosted
Overcosted
Costed correctly
Costed correctly
9. In the two-stage cost allocation process, costs are assigned:
a. From jobs to service departments, to production departments
b. From service departments, to jobs, to production departments
c. From service departments, to production departments, to jobs
d. From the balance sheet (when goods are produced) to the income statement (when goods are sold)
Cost Accounting and Control 2019 Edition
Problem and Solutions
A newly established restaurant along Roxas Boulevard decided to adopt the ABC method of costing. The following are the
budgeted figures for the coming year for the three major activities:
Activity cost pool
Serving party of diners
Serving a dinner
Serving drinks
Activity cost driver
No. of party served
No. of dinners served
No. of drinks served
Budgeted costs
P33,000
138,000
24,000
For the current period, the eatery had the following activities:
Serving party of diners
Serving a dinner
Serving drinks
6,000 parties
15,000 diners
10,000 drinks
The total costs for the month including organization-sustaining costs amounted to P240,000.
10. What is the total cost of serving a party of four diners who order three drinks?
a. P49.50
b. P17.10
c. P68.40
d. P38.40
Diners
Dinner
Drinks
(33,000 / 6,000)
(2,400,000 / 10,000)
(24,000 / 10,000)
=
=
=
5.5
9.2
2.4
(5.5 x 1)
(9.2 x 4)
(2.4 x 3)
=
=
=
5.5
36.8
7.20
P49.50
May flower Company uses Activity Based Costing in the manufacture of two models of furniture. Below are the Activity
Based data together with the amounts of Cost Driver per Job:
Activity driver
Direct labor
Machine set ups
Number of parts
Annual activity driver
600,000
10,000
900,000
Budgeted OH
P9,600,000
2,400,000
1,800,000
Amount of Cost Driver per Job
De Luxe Model
1,200 DLH
2 set ups
800 parts
Standard Model
300 DLH
24 set ups
1,600 parts
Actual data for the year ended December 31, 2019
Units produced
Average cost per job:
Materials
Direct labor at P40 / hr
De Luxe model
400
Standard model
60
P148,000
48,000
P140,800
12,000
11. The manufacturing cost per unit of De Luxe and Standard Model is
a. P196,000, P152,800
b. P217,280, P166,560
c. P490, P2,547
d. P543.20, P2,776
Cost Accounting and Control 2019 Edition
Problem and Solutions
9,600,000 / 600,000 = 16
2,400,000 / 10,000 = 240
1,800,000 / 900,000 = 2
Deluxe
OH:
Direct labor
Machine set ups
Number of parts
OH
DM
DL
TMC
Divided by:
MC per unit
(16 x 1,200)
(240 x 2)
(2 x 800)
Standard
19,200
480
1,600
21,280
148,000
48,000
217,280
/400
543.20
per unit
OH:
Direct labor
Machine set ups
Number of parts
OH
DM
DL
TMC
Divided by:
MC per unit
(16 x 300)
(240 x 24)
(2 x 1,600)
4,800
5,760
3,200
13,760
140,800
12,000
166,560
/60
2,776
per unit
The Robinson Company produces two products, Alpha and Beta, and uses the conventional method of allocating
overhead based on direct labor cost. The management decided to adopt the ABC System of costing. The number of
setups and the number of design hours were selected as the activity drivers for the two new cost pools, and direct labor
cost will continue as the base for allocating the remaining overhead. Information on the other page is available.
Units produced
DM cost per unit
Direct labor cost
Setups
Design hours
Overhead:
Setup related
Design related
Others
Total overhead
Alpha
73,500
P12
P2,910,000
30
12,000
Beta
125
P100
P90,000
30
3,000
P3,000,000
60
15,000
P 300,000
900,000
3,300,000
P4,500,000
12. The amount of overhead applied to the job beta under:
ABC System
Conventional system
a. P135,000
P429,000
b. P429,000
P135,000
c. P3,300,000
P270,000
d. P4,500,000
P429,000
Beta
ABC System
Set ups: 300,000 / 60 = 5,000
Design: 900,000 / 15,000 = 60
Others: 3,300,000 / 3,000,000 = 1.1
Set ups: (5,000 x 30)
Design: (60 x 3,000)
Others: (1.1 x 90,000)
Total
73,625
Conventional System
4,500,000 / 3,00,000 = 1.5
90,000 x 1.5 = P135,000
150,000
180,000
99,000
P429,000
Cost Accounting and Control 2019 Edition
Problem and Solutions
Mozarella Company had the following activities, traceable costs, and physical flow of driver units:
Activities
Account inquiry (hours)
Account billing (lines)
Account verification (accts)
Correspondence (letters)
Traceable costs
P400,000
P280,000
P150,000
P50,000
Cost driver
10,000
4,000,000 lines
40,000 accounts
4,000 letters
Departments A and B use the above activities as follows:
A
Account inquiry (hours)
2,000 hours
Account billing (lines)
400,000 lines
Account verification (accts)
10,000 accounts
Correspondence (letters)
1,000 letters
B
4,000 hours
200,000 lines
8,000 accts
1,600 letters
13. The amount of inquiry cost assigned to Dept. A is
a. P80,000
b. P400,000
c. P160,000
d. P133,333
14. The amount of billing cost assigned to Dept. B is
a. P28,000
b. P14,000
c. P93,333
d. P280,000
Account inquiry (hours)
Account billing (lines)
Department A inquiry cost
Department B billing (cost
(400,000 / 10,000)
(280,000 / 4,000,000)
(2,000 x 40)
(200,000 x 0.07)
=
=
=
=
40
0.07
P80,000
P14,000
Kia Company is a manufacturer of remote controls. The company has always used a plant wide rate for allocating
manufacturing overhead to its product. The plant manager believes it is time to change to a better method of cost
allocation. The manager provided the following data:
Activity
Material handling
Assembly
Inspection
Cost driver
Number of parts
Labor hours
Time item at inspection station
Allocation Rate
P2 per part
P20 per hour
P3 per minute
The traditional allocation method is based upon direct manufacturing labor hours, and if that method is used the rate is
P200 per labor hour.
15. Using the traditional method of costing, assuming in a batch, 1,000 remote controls are produced, requiring 2,000
parts, 20 direct manufacturing labor hours, and 30 minutes inspection rime, the indirect manufacturing costs per
remote control is
a. P0.40
b. P4.00
c. P400
d. P4,000
20 x 200=4,000
4,000
=P 4.00
1,000
Cost Accounting and Control 2019 Edition
Problem and Solutions
16. Using an ABC System, assuming the same data above, the manufacturing overhead costs per remote control is
a. P0.449
b. P4.49
c. P449
d. P4,490
Material handling
Assembly
Inspection
(2,000 x 2)
(20 x 20)
(30 x 3)
=
=
4,000
400
90
4,490
/1,000
P4.49
Nicfur Furniture Corporation has identified activity centers to which overhead costs are assigned. The cost pol amounts for
these centers and their selected activity drivers for 2019 are as follows.
Activity Centers
Utilities
Scheduling and setup
Material handling
Costs
P300,000
273,000
640,000
Activity Drivers
60,000 machine hours
780 set ups
1,600,000 lbs of material
Before it installed an ABC System, the company used a conventional costing system and allocated factory overhead to
products using direct labor hours. The firm operates in a competitive market and product prices were set at cost plus 20
percent markup.
The company’s products and other operating statistics follow:
Product A
P80,000
30,000
130
500,000
40,000
32,000
Prime costs
Machine hours
Number of set ups
Pound of materials
Units produced
Direct labor hours
Product B
P80,000
10,000
380
300,000
20,000
18,000
Product C
P90,000
20,000
270
800,000
60,000
50,000
17. The selling price for Product A, B and C based on costs for conventional costing is
a. P561, 792, P358,008, P835,800
b. P570,600, P459,600, P725,400
c. P475,500, P383,000, P604,500
d. P468,160, P298,340, P696,500
1,213,000
=12.13
100,000
Product A
Prime cost
Overhead:
(32,000 x 12.13)
Total factory cost
Markup
Selling Price
80,000
388,160
468,160
1.20
P561,792
Product B
Prime cost
Overhead
(18,000 x 12.13)
Total factory cost
Markup
Selling Price
80,000
218,340
298,340
1.20
P358,008
Product C
Prime cost
Overhead
(50,000 x 12.13)
Total factory cost
Markup
Selling Price
90,000
606,500
696,500
1.20
P835,800
Cost Accounting and Control 2019 Edition
Problem and Solutions
18. The unit cost for product A, B and C using the ABC system is
a. P11.89, P19.15, P10.075
b. P11.704, P14.917, P11.608
c. P2.00, P4.00, P1.50
d. Answer not given
Utilities
(300,000 / 60,000)
Scheduling and setup
(273,000 / 780)
Material handling
(640,000 / 1,600,000)
Product A
Prime cost
Overhead:
Utilities (30,000 x 5)
Scheduling and setup (130 x 350)
Material handling (500,000 x 0.4)
Total factory cost
Divided by:
Unit cost
80,000
150,000
45,500
200,000
475,500
/40,000
P11.89
5 / MH
350 / set up
04 / lb.
Product B
Prime cost
Overhead:
Utilities (10,000 x 5)
Scheduling and setup (380 x 350)
Material handling (300,000 x 0.4)
Total factory cost
Divided by:
Unit cost
Product C
Prime cost
Overhead:
Utilities (20,000 x 5)
Scheduling and setup (270 x 350)
Material handling (800,000 x 0.4)
Total factory cost
Divided by:
Unit cost
80,000
50,000
133,000
120,000
383,000
/20,000
P19.15
90,000
100,000
94,500
320,000
604,500
/60,000
P10.075
Olivia Enterprise is an exporter of souvenir items. The following overhead costs data have been accumulated:
Activity Center
Material handling
Painting
Assembly
Cost driver
Grams handled
Units painted
Labor hours
Actual Activity
100,000
50,000
4,000
Costs
P 50,000
200,000
120,000
Job 1234 contains 3,000 units. It weighs 10,000 grams and uses 300 hours of labor. Prime costs incurred amounts to
P180,000.
19. The overhead costs that should be assigned to Job 1234 is
a. P12,000
b. P14,000
c. P9,000
d. P26,000
Material handling
Painting
Assembly
(50,000 / 100,000)
(200,000 / 50,000)
(120,000 / 4,000)
20. The cost to produce a unit of Job 1234 is
a. P60.00
b. P64.00
c. P64.67
d. P68.67
=
=
=
0.5
4
30
(0.5 x 10,000)
(4 x 3,000)
(30 x 300)
=
=
=
5,000
12,000
9,000
P26,000
Cost Accounting and Control 2019 Edition
Problem and Solutions
Prime costs + Overhead = TMC / units = Cost to produce unit
180,000 + 26,000 = 206,000 / 3,000 = P68.67
TEST MATERIAL 2
In manufacturing Roller blades, Super Store Company ‘s plant used 400 direct labor hours, 500 machine hours and 20
setups. The following overhead costs were taken from the factory accounts:
Overhead expenses
P120,000
40,000
160,000
Machine center
Set up center
Direct labor hours
Volume activities
20,000 machine hrs
100 set ups
4,000 hours
The plant was using a factory wide overhead rate based on direct labor hours. A new ABC system will use machine hours
in the Machining Department and number of set ups in the Setup Department as cost drivers.
1. The overhead costs assigned to roller blades under:
Based on direct labors
ABC System
a. P16,000
P11,000
b. P12,000
P12,000
c. P11,000
P16,000
d. P120,000
P120,000
Based on Direct Labors
ABC System
120,000 / 20,000 = 6
6 x 500
40,000 / 100 = 400
400 x 20
Machine center
160,000
=40 x 400=P 16,000
Set up center
4,000
3,000
8,000
P11,000
Amend Instrument, Inc. manufactures two products: missile instruments and pressure gauges. During January, 50 missile
instruments and 300 pressure gauges were produced, Direct cost of P54,000 and P85,000 are incurred for Instruments
and Gauge, respectively and overhead costs of P81,000 were incurred. An analysis of overhead costs reveals the
following activities:
Activity
Materials handling
Machine set ups
Quality inspections
Cost Driver
Number of acquisitions
Number of set ups
Number of inspections
Total Activity costs
P30,000
27,000
24,000
The cost driver volume for each product was as follows:
Cost driver
Number of acquisitions
Number of setups
Number of inspections
Instruments
400
150
200
Gauges
600
300
400
Total
1,000
450
600
2. Determine the following for product Instrument:
Overhead applied
Total production costs
a. P27,000
P54,000
b. P29,000
P83,000
c. P30,000
P85,000
d. P40,500
P135,000
Materials handling
Machine set ups
Quality inspections
Applied Overhead
Direct Costs
(30,000 / 1,000) x 400
(27,000 / 450) x 150
(24,000 / 600) x 200
12,000
9,000
8,000
P29,000
54,000
Cost Accounting and Control 2019 Edition
Problem and Solutions
Total Production Costs
P83,000
The following data are available for Everlasting Company.
Units produced
Direct material cost:
Per unit
Direct labor cost
Direct labor hours
Setups
Design hours
AA
2,000
BB
160,000
Total
162,000
P300
P280,000
2,800
45
3,000
P10
P560,000
5,600
45
5,000
8,000
Overhead:
Set up related
Design related
Others
P1,350,000
1,400,000
778,000
At present, Everlasting Company is using direct labor hours to allocate overhead. The management of Everlasting is
considering the use of ABC for more accurate allocation of overhead. The number of set ups and number of design hours
are used to allocate the new cost pools while direct labor hours will continue as the base for allocating all remaining
overhead.
3. Determine the following:
Unit costs of BB – present method
a. P13.50
b. P28.20
c. P35.50
d. P55.00
Unit costs of BB – present method
OH: 3,528,000 / 8,400 = 420 x 5,600 = 2,352,000
DM
DL
OH
TMC
Divided by:
Unit cost
1,600,000
560,000
2,352,000
4,512,000
/160,000
P28.20
Production costs of AA-ABC System
P2,056,000
P2,339,333
P1,731,833
P4,408,000
Production costs of AA-ABC System
Set up related (1,350,000 / 90) x 45
Design related (1,400,000 / 8,000) x 3,000
Others (778,000 / 8,400) x 2,800)
DM
DL
OH
TMC
600,000
280,000
1,459,333
P2,339,333
675,000
525,000
259,333
1,459,333
Cost Accounting and Control 2019 Edition
Problem and Solutions
The Chromosome Manufacturing Company produces two products, X and Y and it uses direct labor hours to allocate
overhead costs. X is selling at P65.00 per unit while Y is selling at P80.00 per unit. The company is considering to adopt
ABS System using the most appropriate cost driver for each cost pool.
The following data are obtained for the current period.
Product X
11,000
P12.50
10,000
P20,000
1,600
80
12
Number of units produced & sold
DM cost per unit
Direct labor hours
Direct labor cost per unit
Machine hours
Inspection hours
Purchase orders
Product Y
3,000
P25.00
2,500
P22.00
2,400
20
3
Overhead costs:
Inspection costs
Purchasing costs
Machine costs
Amount
P56,200
80,000
50,000
4. Determine the following using ABC System:
Gross margin per unit of Y
a. P47.61
b. P17.59
c. P17.39
d. P13.92
Inspection costs
Purchasing costs
Machine costs
Overhead costs
Direct Materials
Direct Labor
Total MC
Selling Price
Gross Margin
Divided by:
GM per unit
Product X
(56,200 / 100) x 80
(80,000 / 15) x 12
(50,000 / 4,000) x 1,600
(12.50 x 11,000)
(20 x 11,000)
(65 x 11,000)
Total gross margin for the period
P715,000
P52,770
P191,290
P270,300
44,960
64,000
20,000
128,960
137,500
220,000
486,460
715,000
228,540
/11,000
P20.78
Inspection costs
Purchasing costs
Machine costs
Overhead costs
Direct Materials
Direct Labor
Total MC
Selling Price
Gross Margin
Divided by:
GM per unit
Product Y
(56,200 / 100) x 20
(80,000 / 15) x 3
(50,000 / 4,000) x 2,400
Total Gross Margin: 228,540 + 41,760 = P270,300
(25 x 3,000)
(22 x 3,000)
(80 x 3,000)
11,240
16,000
30,000
57,240
75,000
66,000
198,240
240,000
41,760
/3,000
P13.92
Cost Accounting and Control 2019 Edition
Problem and Solutions
ASEAN Manufacturing Company makes variety of products. The activity centers and budgeted information for factory
overhead for the year are:
Activity Center
Overhead Costs Cost Driver
Pool Rate
Materials Handling
P3,000,000 Weight of materials
P3 per pound
Cutting
P13,000,000 No. of shapes
P30 per shape
Assembly
46,000,000 Direct labor hours
P120 per DL
Sewing
12,000,000 Machine hours
P80 per MH
Two types of products were produced in July, Product A and Product B which is being sold at 50% above cost. The
quantities and other operating data for the month are:
Product A
P150,000
300,000
50,000
35,000
7,500
12,500
5,000
Direct materials
Direct labor costs
Direct materials – weight in pounds
Number of shapes
Assembly direct labor hours
Sewing machine hours
Units produced
Product B
P200,000
50,000
15,000
15,000
1,200
1,800
1,000
5. The gross profit for Product A is:
a. P620
b. P710
c. P783
d. P1,232
e. P355
6. The gross profit for Product B is:
a. P516.50
b. P688.87
c. P783
d. P1,033
Product A
Materials Handling (50,000 x 3)
Cutting (35,000 x 30)
Assembly (7,500 x 120)
Sewing (12,500 x 80)
OH
DM
DL
TMC
Markup
Sales
TMC
Gross Profit
Divided by units
Gross Profit per unit
150,000
1,050,000
900,000
1,000,000
3,100,000
150,000
300,000
3,550,000
1.50
5,325,000
3,550,000
1,775,000
/5,000
P355
Product B
Materials Handling (15,000 x 3)
Cutting (15,000 x 30)
Assembly (1,200 x 120)
Sewing (1,800 x 80)
OH
DM
DL
TMC
Markup
Sales
TMC
Gross Profit
Divided by units
Gross Profit per unit
45,000
450,000
144,000
144,000
783,000
200,000
50,000
1,033,000
1.50
1,549,500
1,033,000
516,500
/1,000
P516.50
PSP Company manufacturers two types of Electronic Toy, The Regular and Super Pro. The following data have been
obtained:
Regular
Super Pro
DM cost per unit
P33
P38
DL cost per unit
32
44
Direct labor hours
12,000
3,000
Machine hours
2,000
4,000
Engineering hours
450
450
Cost Accounting and Control 2019 Edition
Problem and Solutions
Number of set ups
5
20
Number of units
8,000
2,200
Currently, overhead costs are assigned to products on the basis of direct labor hours, but the company decided to adopt
the ABC method of cost allocation. The overhead consists of the following items:
Overhead item
Set up
Engineering
Machine costs
Cost Driver
Number of set ups
Number of engineering hours
Number of machine hours
OH costs
P240,000
180,000
900,000
7. Using direct labor hours to allocate overhead costs, the total cost of product regular is
a. P520,000
b. P1,056,000
c. P1,312,000
d. P1,576,000
Regular: 1,320,000 / 15,000 = 88 x 12,000 = P1,056,000
8. Using ABC, determine the following:
Overhead cost-Super Pro
a. P882,000
b. P1,056,000
c. P1,402,000
d. P1,576,000
Per unit cost-Super Pro
P482.91
P562.00
P682.22
P82.00
Set up (240,000 / 25) x 20
Engineering (180,000 / 900) x 450
Machine costs (900,000 / 6,000) x 4,000
OH
DM
DL
TMC
Divided by units
Cost per unit
192,000
90,000
600,000
P882,000
83,600
96,800
1,062,400
/2,200
P482.91
Forever 21 Company is using traditional method of applying overhead at 20% of direct labor costs. Monthly direct labor
costs for its main products is P30,000. In an attempt to distribute quality control costs more equitably, Forever 21 is
considering activity-based costing. The monthly data shown below have been gathered for the main product. The three
activities are (1) inspection of incoming materials; (2) inspection of in process; and (3) certification of completed products
costs are to be allocated to each activity on the basis of cost drivers.
Activity
(1)
(2)
(3)
Cost driver
No. of types of materials
No. of units
No. of orders
Cost rate
P15 per type
P0.15 per unit
P77 per order
Quantity for main products
12 types
17,500 units
30 orders
9. Using ABC, the monthly quality control cost assigned to the main product using ABC is:
a.
b.
c.
d.
P5,115
Lower by P885 than the traditional method
P6,000
Higher by 404 than the traditional method
Inspection of incoming materials p (12 x 15)
Inspection of in process Engineering (17,500 x 0.15)
Certification of completed products costs (30 x 77)\
180
2,625
2,310
P5,115
Cost Accounting and Control 2019 Edition
Problem and Solutions
TEST MATERIAL 3
Stop N Shop Supermarket has three main areas within its store: Beverage, Foods and Non-food items. The following
information pertains to the last quarter of the current year, when store overhead was allocated based on cost of sales:
Beverage
Foods
Non-Foods
P677,500
275,000
110,000
P954,500
345,000
138,000
P559,000
240,000
96,000
600
400,000
3,600
1,550
250
350,000
2,950
1,750
175
150,000
2,575
1,875
Financial data:
Sales
Cost of sales
Store overhead
Activity usage & cost driver
Ordering (No. of orders)
Customer support (sold)
Stocking shelves (hrs worked)
Delivery (no. of deliveries)
An activity analysis revealed that, of total store overhead, 30% related to ordering, 20% related to customer support, 40%
related to stocking shelves and 10% to delivery.
1. Using the traditional method of allocating overhead, the amount of overhead allocated to Beverage is ___________
(275,000 / 860,000) x 344,000 = P110,000
2. If ABC costing is used, the amount of overhead allocated to Food section is ___________
Ordering
Customer support
Stocking shelves
Delivery
344,000 x 30%
344,000 x 20%
344,000 x 40%
344,000 x 10%
=
=
=
=
103,200 x (250 / 1,025)
68,800 x (350,000 / 900,000)
137,600 x (2,950 / 9,125)
34,400 x (1,750 / 5,175)
=
=
=
=
25,171
26,756
44,484
11,633
P108,044
Rapide Company manufactures three products, gears, shafts and chassis. The Cost Accountant of Rapide Manufacturing
Company has prepared the following budgeted activity for the year:
Activity Center
Materials Handling
Production Scheduling
Set ups
Manual Machinery
Automated machinery
Finishing
Packaging & Shipping
Units produced
DM cost per unit
Number of orders
Number of set ups
Direct labor hours
Labor rate per hour
Machine hours
Number of orders shipped
Budgeted Costs
P624,800
232,000
289,200
1,972,000
6,424,000
3,596,000
468,000
Gears
20,000
P120
80
40
40,000
P20
60,000
2,000
Answer 3-4 using labor hours as the basis of allocating overhead.
Cost Driver
Direct material costs
Number of orders
Number of set ups
Direct labor hours
Machine hours
Direct labor hours
Number of orders shipped
Shafts
4,000
P160
40
20
20,000
P25
30,000
3,000
Chassis
1,400
P200
20
28
16,800
P30
5,600
140
Cost Accounting and Control 2019 Edition
Problem and Solutions
3. The budgeted overhead applied to the three jobs will amount to ___________
13,606,000 / 76,800 = 177.16
Gears
Shafts
Chassis
40,000 x 177.16
20,000 x 177.16
16,800 x 177.16
=
=
=
7,086,400
3,543,200
2,976,288
P13,605,800
4. The manufacturing cost per unit of gear is ____________
Direct Materials (120 x 120,000)
Direct Labor (40,000 x 20)
Overhead
Total Manufacturing Costs
Divided by units
Manufacturing cost per unit
2,400,000
800,000
7,086,400
10,286,400
/ 20,000
P514.32
Answer 5-6 using ABC method.
5. The total overhead applied to the three jobs will amount to ___________
Materials Handling
Production Scheduling
Set ups
Manual Machinery
Automated machinery
Finishing
Packaging & Shipping
Gears
(624,800 / 3,320,000) x 2,400,000
(232,000 / 140) x 80
(289,200 / 88) x 40
(1,972,000 / 76,800) x 40,000
(6,424,000 / 95,600) x 60,000
(3,596,000 / 76,800) x 40,000
(468,000 / 5,140) x 2,000
Materials Handling
Production Scheduling
Set ups
Manual Machinery
Automated machinery
Finishing
Packaging & Shipping
Shafts
(624,800 / 3,320,000) x 640,000
(232,000 / 140) x 40
(289,200 / 88) x 20
(1,972,000 / 76,800) x 20,000
(6,424,000 / 95,600) x 30,000
(3,596,000 / 76,800) x 20,000
(468,000 / 5,140) x 3,000
Materials Handling
Production Scheduling
Set ups
Manual Machinery
Automated machinery
Finishing
Packaging & Shipping
Chassis
(624,800 / 3,320,000) x 280,000
(232,000 / 140) x 20
(289,200 / 88) x 28
(1,972,000 / 76,800) x 16,800
(6,424,000 / 95,600) x 5,600
(3,596,000 / 76,800) x 16,800
(468,000 / 5,140) x 140
Gears
Shafts
Chassis
Total Overhead
P7,829,589
3,991,508
1,784,903
P13,606,000
P 451,663
132,571
131,455
1,027,083
4,031,799
1,872,917
182,101
P7,829,589
P 120,443
66,286
65,727
513,542
2,015,900
936,458
273,152
P3,991,508
P 52,694
33,143
92,018
431,375
376,301
786,625
12,747
P1,784,903
Cost Accounting and Control 2019 Edition
Problem and Solutions
6. The budgeted manufacturing cost of product shaft is _____________
Direct Materials (160 x 4,000)
Direct Labor (20,000 x 25)
Overhead
Total Manufacturing Costs
Divided by units
Manufacturing cost per unit
640,000
500,000
3,991,508
5,131,508
/ 4,000
P1,282.88
The following budgeted activity data and costs are from Peninsula Hotel.
Activity center
Service Centers:
Administration
Building maintenance
Production Centers:
Accommodation
Food section
Direct costs
P1,230,000
690,000
Support costs
% of space used
Number of employees
P640,000
750,000
20%
15
10
450,000
880,000
60%
20%
30
20
Administration use number of employees as its cost driver. Building and maintenance uses percentage of space used as
its cost driver. Accommodation uses labor hours as its cost driver and has budgeted 45,000 hours for the month of June.
Food section also uses labor hours as its deriver and has budgeted 35,000 hours for this month. Peninsula Hotel uses
direct method to allocate the service costs.
7. The total support costs allocated to Accommodation and Food section is ______________ and _____________
DIRECT METHOD
Allocation to Accommodation:
From Administration – 640,000 x (30 / 50)
From Building maintenance – 750,000 x (60 / 80)
Allocation to Food Section
From Administration – 640,000 x (20 / 50)
From Building maintenance – 750,000 x (20 / 80)
384,000
562,500
P946,500
256,000
187,500
P443,500
8. The cost rates used by Accommodation and Food Section in calculating overhead costs is ____________ and
_______________
Accommodation: (1,396,500 / 80,000) = P17.46
Food Section: (1,323,500 / 80,000) = P16.54
Cost Accounting and Control 2019 Edition
Problem and Solutions
A new cost system has been implemented in Megaworld Center. The old system applied overhead to customer jobs using
labor costs as the basis. The new cost system uses cost drivers for each activity center to cost customer jobs. Pre-selling
tasks and Post selling services are preliminary activity centers. The activity center and their information are as follows:
Activity Centers
Pre-selling tasks
Post-selling tasks
Installation
Renovation & Repair
Labor costs
P600,000
400,000
Overhead costs
P500,000
500,000
400,000
600,000
Cost driver
% of space
Labor costs
Material cost
Repair hours
Occupancy %
Other activity
20%
40%
40%
1M material costs
9,000 hours
One large commercial contract for Camella Prestige Corporation, used P540,000 of installation materials and P280,000 of
labor costs. The job also used P120,000 and 950 hours of renovation and repairs labor.
9. The total costs for Camella Prestige Corporation under the new cost system is _____________
Allocation to Installation:
From Pre-selling tasks – 500,000 x (40 / 80)
From Post-selling tasks – 500,000 x (600 / 1000)
250,000
300,000
P550,000
Allocation to Renovation & Repair:
From Pre-selling tasks – 500,000 x (40 / 80)
From Post-selling tasks – 500,000 x (400 / 1000)
Installation
Renovation & Repair
Total Overhead
Direct Materials
Direct Labor
Total Costs
(950,000 / 1,000,000) x 540,000
(1,050,000 / 9,00) x 950
250,000
200,000
P450,000
513,000
110,833
623,833
540,000
280,000
P1,443,833
The following cost data have been accumulated for Avis Car Rentals:
Activity Center
Selling
Alterations
Cleaning & Preparation
General overhead
Cost Driver
Labor hours
Times altered
Number rented
Labor hours
Amount of activity
900 hours
200 units
750 units
900 hours
Center Costs
P45,000
12,000
60,000
43,650
Gerry Punch, a customer, necessitated two hours of selling time. He rented 10 cars for his company team building activity
and 6 of them required alterations.
10. The total costs assigned to Gerry Punch is ______________
Selling
Alterations
Cleaning & Preparation
General overhead
(45,000 / 900) x 2
(12,000
513,000
110,833
623,833
540,000
280,000
P1,443,833
Cost Accounting and Control 2019 Edition
Problem and Solutions