PRACTICE SET B – ACTIVITY BASED COSTING & BACKFLUSH COSTING

ACTIVITY BASED COSTING

1. Cadott Manufacturing produces three products. Production and cost information show the following:
Model X Model Y Model Z
Units produced 1,000 3,000 6,000
Direct labor hours 2,000 1,000 2,000
Number of inspections 20 30 50

Inspections costs totaled P50,000. Using direct labor hours as the allocation base inspections costs allocated to each unit of
Model X would be:
a. P5.00 c. P20.00
b. P10.00 d. Some other answer

2. Cadott Manufacturing produces three products. Production and cost information show the following:
Model X Model Y Model Z
Units produced 1,000 3,000 6,000
Direct labor hours 2,000 1,000 2,000
Number of inspections 20 30 50

Inspections costs totaled P50,000. Using ABC, inspections costs to each unit of Model Y would b:
a. P3.33 c. P10.00
b. P5.00 d. Some other answer

3. Genco manufactures two versions of a product. Production and cost information show the following:
Mode A Model B
Units produced 100 200
Material moves 10 40
Direct labor hours per unit 1 3

Material handling costs total P100,000. Direct labor hours are used to allocate overhead costs. The material handling costs
allocated to each unit of Model A would be:
a. P143 c. P333
b. P200 d. Some other answer

4. Genco manufactures two versions of a product. Production and cost information show the following:
Mode A Model B
Units produced 100 200
Material moves 10 40
Direct labor hours per unit 1 3

Material handling costs total P100,000. Under ABC, the material handling costs allocated to each unit Model B would be:
a. P200 c. P400
b. P333 d. Some other answer

5. Waupaca Company produces three products with the following production and cost information:
Model A Model B Model C
Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5
Overhead costs include setups P45,000; shipping costs P70,000; and engineering costs P90,000. What would be the per unit
overhead costs for Model B if activity-based costing were used?
a. P11.000 c. P61.50
b. P33.00 d. Some other answer

6. Kimball Company produces two products in a single factory. The following production and cost information has been
determined:
Model 1 Model 2

Page 1 of 4
 Units produced 10,000 2,000
Materials moves (total) 100 40
Testing time (total) 250 125
Direct labor hours per unit 1 5

The controller has determined total overhead to be P480,000. P120,000 relates to material moves; P150,000 relates to testing;
the remainder is related to labor time. If Kimball uses direct labor hours to allocate overhead to each model. What would
overhead per unit be for Model 1?
a. P1.00 c. P24.00
b. P12.00 d. P40.00

7. Kimball Company produces two products in a single factory. The following production and cost information has been
determined:
Model 1 Model 2
Units produced 10,000 2,000
Materials moves (total) 100 40
Testing time (total) 250 125
Direct labor hours per unit 1 5

The controller has determined total overhead to be P480,000. P140,000 relates to material moves; P150,000 relates to testing;
the remainder is related to labor time. If Kimball uses activity-based costing to allocate overhead to each model, what would
be overhead unit be for Model 1?
a. P40.00 c. P24.00
b. P29.50 d. P12.00

8. Superior Inc. produces three products. Production and cost information is as follows:
Model Q Model R Model S
Unis produced 2,000 6,000 12,000
Direct labor hours 4,000 2,000 4,000
Number of setups 100 150 250

The consumption ratios for number of setups would be:

Q R S
a. 40% 20% 40%
b. 20% 30% 50%
c. 10% 30% 60%
d. Some other numbers

9. Superior Inc. produces three products. Production and cost information is as follows:
Model Q Model R Model S
Unis produced 2,000 6,000 12,000
Direct labor hours 4,000 2,000 4,000
Number of setups 100 150 250

The consumption ratios based on units produced would be:

Q R S
a. 40% 20% 40%
b. 20% 30% 50%
c. 10% 30% 60%
d. Some other numbers

BACKFLUSH COSTING

1. The Pampanga Manufacturing Company used a raw and in process (RIP) inventory account and expenses all conversion costs
to the cost of goods sold. At the end of each month, all inventories are counted, their conversion cost components are

Page 2 of 4
 estimated, and inventory account balances are adjusted accordingly. Raw materials cost is backflushed from RIP to Finished
Goods. The following information is for the month of April:
Beginning balances of RIP account, including P1,400 of conversion cost P31,000
Raw materials received on credit P367,000
Ending RIP inventory per physical account, including P1,800 conversion cost estimate 33,000

Compute the amount to be backflushed from RIP to Finished Goods.

a. P365,000 c. P367,000
b. 368,600 d. 365,400

2. The Bulacan Manufacturing Company produces only for customer order and most work is shipped with thirty-six hours of the
receipt of an order. Bulacan uses a raw and in process (RIP) inventory account and expenses 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 components is estimated and the RIP account balance is adjusted accordingly.
Raw materials cost is backflushed from 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 cost P12,300
Raw materials received on credit P246,000
Ending RIP inventory per physical count, including P2,100 conversion cost estimate P12,100
Compute the amount to be backflushed from RIP to Cost of Goods Sold.
a. P246,000 c. P247,000
b. 246,200 d. 245,000

3. Using the information in No. 2, compute the amount of Cost of Goods Sold of transactions and adjustments were made:
a. P246,000 c. P247,000
b. 246,200 d. 245,000

4. Chongi Ong, general manager of Casio Corporation’s Midwest Division, has provided the following information for
transactions that occurred during March. The division uses a JIT costing system.
(a) Raw materials were purchased at the cost of P97,000
(b) All materials purchases were requisitioned for production
(c) Direct labor costs of P77,000 were incurred.
(d) Actual factory overhead costs amounted to P225,000
(e) Applied conversion costs totaled P300,000. This included P77,000 of direct labor.
(f) All units were completed.

Compute the March 31 balance in the Conversion Cost

a. P2,000 debit c. P25,000 credit
b. 2,000 credit d. 22,00 debit

5. Using the information in No. 4, compute the March 31 balance in the Finished Goods account.
a. P397,000 credit c. P329,000 debit
b. 397,000 debit d. 377,00 debit

6. Using the same information in No. 6, compute the amount of Finished Goods after all transactions have been completed
a. P8,500,000 c. P10,600,000
b. 9,050,000 d. 9,650,000

7. G. Bello, general manager of a highly automated coffee production plant in Laguna, Ilocos Sur, has provided the following
information for transactions that occurred during October. The production plant uses a JIT costing system.
(a) Raw materials costing P300,000 were purchased
(b) All materials costing P300,000 were requisitioned for production
(c) Direct labor costs of P200,000 were incurred
(d) Actual factory overhead costs amounted to P995,000
(e) Applied conversions costs totaled P1,300,000. This includes the direct labor cost.
(f) All units are completed and immediately sold.

Determined the October 31 balance in the Cost of Goods Sold account. No adjustment has been made for overapplied or
underpplied conversion cost.

a. P1,300,000 c. P 1,600,000
b. 1,495,000 d. 1,195,000

Page 3 of 4
8. Using the information in No. 8, what was the overapplied or underapplied conversion costs for the month?
a. P305,000 overapplied c. P105,00 overapplied
b. 195,000 underapplied d. 105,000 underapplied

9. Using the information in No. 8 and 9 , what is the Cost of Goods sold after the transactions have been completed?
a. P1,304,000 c. P1,600,000
b. 1,495,000 d. 1,195,000

10. Kara Manufacturing uses backflush costing to account for an electronics meter it makes. During August 2008, the firm
produced 16,000 meters of which it sold 15,800. The standard for each meter is:
Direct materials P20
Conversion costs 44
P64

Assume the firm had no inventory on August 1. The following events took place in August.
(a) Purchased P320,000 of direct materials
(b) Incurred P708,000 of conversion costs
(c) Applied P704,000 of conversion costs to Raw and in Process Inventory (RIP).
(d) Finished 16,000 meters.
(e) Sold 15,800 meters for P100 each.

Compute the amount to be backflushed from RIP to Finished Goods.

a. P320,000 c. P1,024,000
b. 704,000 d. 1,028,000

11. Using the same information in No. 13, determine the August 31 (ending balance) of Finished Goods account
a. P-0- c. P12,962
b. 12,850 d. 12,800

Page 4 of 4