Prelim Quiz 2 - MC

A company experienced a machinery breakdown on one of its production lines. As a

consequence of the breakdown, manufacturing fell behind schedule, and a decision was
made to schedule overtime to return manufacturing to schedule. Which one of the
following methods is the proper way to account for the overtime paid to the direct
laborers?

  
The overtime hours times the sum of the straight-time wages and overtime premium
would be charged entirely to manufacturing overhead.
 
  
The overtime hours times the sum of the straight-time wages and overtime premium
would be treated as direct labor.
 
  
The overtime hours times the overtime premium would be charged to repair and
maintenance expense, and the overtime hours times the straight-time wages would be
treated as direct labor.
 
Correct Answer
  
The overtime hours times the overtime premium would be charged to manufacturing
overhead, and the overtime hours times the straight-time wages would be treated as
direct labor.
 

Alex Company had the following inventories at the beginning and end of the month of
January.
                                                        January 1                      January 31
Finished goods                                P125,000                      P117,000
 
Work-in-process                              235,000                         251,000
Direct materials                               134,000                         124,000
The following additional manufacturing data were available for the month of January:
Direct materials purchased                               P189,000
Purchase returns and allowances                            1,000
Transportation-in                                                      3,000
Direct labor                                                           300,000
Actual factory overhead                                      175,000
Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any
overapplied or underapplied factory overhead is deferred until the end of the year,
December 31. Alex Company's cost of goods manufactured for January was

  
681000
 
  
657000
 
Correct Answer
  
665000
 
  
673000
 
Farber Company employs a normal cost system. The following information is from the
financial records of the company for the year.
Total manufacturing costs were P2,500,000.
Cost of goods manufactured was P2,425,000.
Applied factory overhead was 30% of total manufacturing costs.
Factory overhead was applied to production at a rate of 80% of direct labor cost.
Work-in-process inventory at January 1 was 75% of work-in-process inventory at
December 31.

  
75000
 
Correct Answer
  
300000
 
  
100000
 
  
225000
 
During the current accounting period, a manufacturing company purchased P70,000 of
raw materials, of which P50,000 of direct materials and P5,000 of indirect materials
were used in production. The company also incurred P45,000 of total labor costs and
P20,000 of other factory overhead costs. An analysis of the work-in-process control
account revealed P40,000 of direct labor costs.
Based upon the above information, what is the total amount accumulated in the factory
overhead control account?

  
45000
 
  
50000
 
Correct Answer
  
30000
 
  
25000
 
Gedye Company has correctly computed its economic order quantity at 500 units;
however, management feels it would rather order in quantities of 600 units. How should
Gedye's total annual purchase order cost and total annual carrying cost for an order
quantity of 600 units compare to the respective amounts for an order quantity of 500
units?

  
Higher purchase order cost and lower carrying costs
 
Correct Answer
  
Lower purchase order cost and higher carrying cost
 
  
Higher purchase order cost and higher carrying cost
 
  
Lower purchase order cost and lower carrying cost
 
Rowe Co.'s Job 401 for the manufacture of 2,200 coats was completed during August at
the unit costs presented below.  Final inspection of Job 401 disclosed 200 spoiled coats
that were sold to a jobber for P6,000.
Direct materials                                                   P24
Direct labor                                                             18
Factory overhead                                                   14
Assume that spoilage loss is attributable to the exacting specifications of Job 401 and is
charged to this specific job. What would be the unit cost of the good coats produced on
Job 401?

  
56.00
 
Correct Answer
  
58.60
 
  
53.00
 
  
48.18
 

During March, Hart Company incurred the following costs on Job 122 for the
manufacture of 200 motors:
Original cost accumulation:          
   Direct materials                            P 2,600
   Direct labor                                         900
   Factory overhead                            1,350
Direct costs of reworking 10 units:                  
   Direct materials                            P 100
   Direct labor                                      180           
   Factory overhead                           270
 
The rework costs were attributable to the exacting specifications of Job 122, and the full
rework costs were charged to this specific job. What is the cost per finished unit of Job
122?

  
25.00
 
  
23.50
 
Correct Answer
  
27.00
 
  
24.00
 
Which of the following items relating to direct labor employees might be charged to
specific jobs in work in process rather than factory overhead?

  
Make-up guarantee
 
  
Idle Time
 
  
Shift Premium
 
Correct Answer
  
Holiday Pay
 

Wage plans that encourage employees to work harder and earn more by producing
more or by meeting or exceeding quotas are known as:

  
Modified wage plans.
 
  
Salary wage plans.
 
Correct Answer
   
Piece-rate plans.
 
  
Hourly-rate plans.
 

Under a modified wage plan, an employee earns P.75 for each finished unit and is
guaranteed P10 per hour as a minimum wage. If the daily quota is 100 units, on a
particular day when an employee completes 85 units and works 8 hours, the amount of
the make-up guarantee will be:

  
80.00
 
  
72.25
 
Correct Answer
  
16.25
 
  
5.00
 

An employee regularly earns P12 per hour for an 8-hour day with time-and-a-half for
overtime hours. Assuming that the employee works a 10-hour day, the amount of
overtime premium is:

  
36.00
 
  
18.00
 
Correct Answer
  
12.00
 
  
6.00
 
The file for each factory employee that shows the time the employee spent on each job,
as well as time spent as indirect labor is the:
Correct Answer
  
labor time record.
 
  
payroll record.
 
  
employee’s earnings record.
 
  
labor cost summary.
 

Under a modified wage plan, an employee working an eight-hour day earns P.40 for
each finished unit and is guaranteed P20 per hour as a minimum wage. At what level
should the daily quota be set?

  
160 units
 
Correct Answer
  
400 units
 
  
500 units
 
  
640 units
 

Under a modified wage plan, Jim Phillips works an eight-hour day and earns P.50 for
each finished unit he produces in excess of 200 units. However, he is guaranteed
P12.50 per hour as a minimum wage.  His production this week was a follows:
Monday               220 units
Tuesday              180 units
Wednesday        200 units
Thursday             200 units
Friday                  190 units
How much was the make-up guarantee paid to Jim this week?

  
P10.00
 
  
P5.00
 
Correct Answer
  
P15.00
 
  
P12.50
 

Expected annual usage of a particular raw material is 1,200,000 units, and standard
order size is 10,000 units. The invoice cost of each unit is P145, and the cost to place
one purchase order is P105.  The estimated annual order cost is:

  
P12,000
 
  
P17,400
 
Correct Answer
  
P12,600
 
  
P800,000
 

Under a modified wage plan, Jim Phillips works an eight-hour day and earns P.50 for
each finished unit he produces in excess of 200 units. However, he is guaranteed
P12.50 per hour as a minimum wage.  His production this week was a follows:
 
Monday               220 units
Tuesday              180 units
Wednesday        200 units
Thursday             200 units
Friday                  190 units
 
What were Jim’s total earnings this week?

  
500
 
Correct Answer
  
510
 
  
495
 
  
515
 

Assuming that demand is determinable, what is the objective of the economic order
quantity (EOQ) model for inventory?

  
To minimize order costs or carrying costs, whichever are higher
 
  
To minimize order costs or carrying costs and maximize the rate of inventory turnover
 
Correct Answer
  
To minimize the total order costs and carrying costs over a period of time
 
  
To order sufficient quantity to economically meet the next period's demand
 

The Bisset Corporation uses Raw Material A in a manufacturing process.  Information

as to balances on hand, purchases, and requisitions of Raw Material A is given in the
following table.
 
Raw Material A
 

Date               Transaction  Number of Units Unit Price Balance of Units

Jan. 1 Beginning balance 100 P1.40 100

Jan. 24 Purchased  300 P1.55 400

Feb. 8 Issued 80   320

Mar. 16 Issued 140   180

Jun. 11 Purchased 150 P1.62 330

Aug. 18 Issued 130   200

Sep. 6 Issued 110   90

Oct. 15 Purchased 150 P1.70 240

Dec. 29 Issued 140   100

 
If a perpetual inventory record of Raw Material A is maintained on a moving average
basis, the 330 items in inventory on June 11 will have a unit cost of:

  
1.5100
 
  
1.5233
 
Correct Answer
  
1.4856
 
  
1.5125
 
The Bisset Corporation uses Raw Material A in a manufacturing process.  Information
as to balances on hand, purchases, and requisitions of Raw Material A is given in the
following table.
 
Raw Material A
 

Date               Transaction  Number of Units Unit Price Balance of Units

Jan. 1 Beginning balance 100 P1.40 100

Jan. 24 Purchased  300 P1.55 400

Feb. 8 Issued 80   320

Mar. 16 Issued 140   180

Jun. 11 Purchased 150 P1.62 330

Aug. 18 Issued 130   200

Sep. 6 Issued 110   90

Oct. 15 Purchased 150 P1.70 240

Dec. 29 Issued 140   100

 
If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, 200
units on hand on August 18 will consist of:

  
100 units @ P1.40, 80 units @ P1.55 and 20 units @ P1.62.
 
  
100 units @ P1.55 and 100 units @ P1.62.
 
Correct Answer
   
150 units @ P1.62 and 50 units @ P1.55.
 
  
200 units @ P1.55.
 

In a period of rising prices, the use of which of the following cost flow methods would
result in the lowest cost of ending inventory?

  
FIFO
 
Correct Answer
  
LIFO
 
  
Weighted Average
 
  
Moving Average
 

Sully Company uses 3,000 yards of canvas each day to make tents.  It usually takes ten
days from the time Sully orders the material to when it is received.  If Sully’s desired
safety stock is 12,000 yards, what is Sully’s order point?

  
12,000 yards
 
  
15,000 yards
 
  
30,000 yards
 
Correct Answer
  
42,000 yards
 

Order costs would include all of the following except:

   
Receiving clerk’s wages.
 
Correct Answer
  
Storeroom keeper’s wages.
 
  
Purchasing department’s telephone bill.
 
  
Transportation in.
 

Carrying costs would include all of the following except:

  
Warehouse rent.
 
Correct Answer
  
Inspection employees’ wages.
 
  
Property taxes.
 
  
Losses due to obsolescence.
 

All of the following methods may be used to account for the revenue from scrap
sales except:

  
Credit Factory Overhead, if the scrap cannot be identified with a specific job.
 
Correct Answer
  
Credit Materials, if the scrap would have been able to be recycled.
 
  
Credit Work in Process, if the scrap is identified with a specific job.
 
  
Credit Scrap Revenue, which is included in the “Other Income” section of the income
statement.
 

The accounting department of Lorelei Co. provided the following data for June: Sales,
P72,000; Marketing expenses – 5%of sales; Administrative – 1% of sales;  Other
expenses – 5% of sales; purchases – P36,000; Factory overhead, 2/3 of direct labor, -
P15,000.
 
Beginning Inventories: Finished Goods – P7,000; Work in Process – P8,000; Materials
– P8,000
Ending Inventories: Finished Goods – P10,200; Work in Process – P15,000; Materials –
P8,500
Compute for the income before income tax.

  
17020
 
Correct Answer
  
13780
 
  
10580
 
  
6820
 
Prelim Quiz 2 - Problem Solving
Bon's Corporation manufactures and sells customized products and charges overhead
base on labor cost. The company's regular operation is 6 days a week for a total of 48
regular working hours for each employee. Following is the production summary for the
month ended October 31, 2020:                      

 Work in process October 1 is consist only of Batch 1012 which is charged 35 lbs
of materials, 6 hours of Jack labor hours, 7 hours of Jill labor hours and P978 of
overhead. 

 During the month, the company started 4 Batchs and charged the work in
process with the following:                                                           
Batch Number                                  1012            1013           1014           1015
Units of production                              50                40               70               80
Materials in lbs                                     20                45               75               60         
Employee labor hours charged to each Batch were as follows:                           
Name                   Rate/Hour                   
Jack                      60                             42                60               65               32
Jill                          65                             43                50               72               32
There were four work week during the month, and the company has required each
worker to work for an overtime for at least 2 hours. There were no recorded absences
during the month, but due to power interruption, Jack and Jill became idle for 2 hours.
The employees are paid at 25% premium for the overtime work.                       
The company has been ordering the materials using the economic order quantity for
each materials and always maintain a maximum safety stock. Normal, Minimum and
Maximum usage in a day is 7, 6 and 10 units respectively. Suppliers, normally delivers
order within 2 days but there are times that the order are received only after 3 days from
the date the order are placed. Beginning Inventory of materials 35 lbs. Ordering cost is
accounted as part of material cost and added to the cost per unit which is estimated at
P250/order, while carrying cost which is recognized as administrative expenses is
estimated at 5% of the purchase price. Purchase order are accepted only by the
supplier if the order in lbs. is in multiple of 200 with a maximum one time order of 1,000
lbs. Trade discount given by the supplier for order above 200  is  1%, 1.5%, 2% and 3%
of list price which is P200/lb. The company estimated the materials to be used for the
year at 2,200 lbs.
At the end of the month, it was determined that around ½% of the materials issued were
accounted as scrap, valued at 20% of their purchase price, of which 7% were identified
with Batch 1013 and 8% with Batch 1014.                                                      
Batchs 1012 and 1014 were completed and delivered to the customer, while Batch 1013
was completed and transferred to finished goods inventory, but prior to the transfer of
Batch 1014, it was found out that 10% of the units were defective and were rework by
Jill for an additional 5 hours of labor which is included already in the above table, while
for Batch 1013, 5% of the units were defective and accounted as seconds which can be
sold at 50% of their cost.                                                                        
It is the policy of the company to price its product at 25% margin.                                     
Compute for EOQ.   
 Correct Answers
400 
Compute for Cost of Ending Inventory.
Correct Answers
43,714.82    
Compute for Order/Reorder Point.      
 Correct Answers
30 
Compute for Average Inventory of Materials in Units.   
Correct Answers
216 
Compute for cost of Work In Process Inventory ending.
 Correct Answers
19,961.23 
Compute for cost of Finished Goods Inventory Ending. 
Correct Answers
22,852.36 
Compute the Cost of goods Manufactured. 
Correct Answers
79,980.01 
Compute the Cost of Goods Sold Normal.          
Correct Answers
56,541.69