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CHAPTER 3

COSTS CONCEPTS and CLASSIFICATION


[Problem 1]
1.
Direct labor
Variable factory overhead
Fixed factory overhead
Unit conversion cost

P10
15
6
P31

2.

Direct materials
Direct labor
Unit prime cost

P32
10
P42

3.

Unit prime cost


Variable factory overhead
Unit variable cost

P42
15
P57

4.

Total production cost (12,000 units x P63) P756,000

[Problem 2]
1.
Indirect materials and factory supplies
Supervising salaries
Repairs and maintenance
Heat, light and power
Overtime premium plant worker
Fringe benefits for plant worker
Depreciation plant
Insurance plant
Actual factory overhead

P 68,000
90,000
40,000
28,000
20,000
15,000
190,000
22,000
P473,000

2.

Applied factory overhead (71,000DLH x P7.50) = P532,500

3.

Actual factory overhead


Less: Applied factory overhead
Overapplied factory overhead

P473,000
532,000
P( 59,500)

4..

Factory overhead shown on the


statement of cost of goods manufactured

P473,000

[Problem 3]
1.
Unit cost
=

=
P4.35

P750,000 + P800,000 + P80,000 + P110,000


400,000 units

2.

Cost of goods sold = 360,000 units x P4.35 = P1,566,000

3.

Inventory Aug. 31 = 40,000 units x P4.35

= P174,000

[Problem 4]

1. Direct materials
Direct labor
Factory supplies
Direct variable costs

Department
A
P
800,000
600,000
20,000
P
1,420,000

Department
B
P
1,200,000
660,000
60,000
P
1,920,000

2. Controllable direct fixed costs:


Supervising salaries

48,000

72,000

Uncontrollable direct fixed


3. costs:
Depreciation of machinery
and equipment

140,000

220,000

4. Controllable direct fixed costs


Uncontrollable direct fixed
costs
Total direct fixed costs

48,000

72,000

140,000
188,000

220,000
292,000

5. Direct variable costs


Direct fixed costs
Total direct costs

6. Allocated costs from corporate


Headquarter
Allocated repairs and
maintenance
(P250,000 x 120 / 400)
Allocated factory rent - building
(P200,000 x 20%)
Allocated plant executives
salaries (P380,000 x 40%)
Total indirect costs
7. Allocated costs from corporate
headquarter
Allocated factory rent - building
Allocated plant executives
salaries
Depreciation for machinery
and equipment
Total unavoidable costs
Supporting computations:

1,420,000
188,000
1,608,000

1,920,000
292,000
2,212,000

130,000

190,000

75,000

175,000

40,000

160,000

152,000

228,000

397,000

753,000

130,000
40,000

190,000
160,000

152,000

140,000
462,000

228,000

220,000
798,000

Department B
Allocated repairs & maintenance
(P250,000 x 280 / 400)
Allocated factory rent building
(P200,000 x 80%)
Allocated plant executives salaries
(P380,000 x 60%)

P 175,000
160,000
228,000

[Problem 5]
1.
Chemicals (P2,000 100 lbs.)
Direct labor (P200 100 lbs)
Electricity and water (P100 100 lbs)
Supervisors salaries (P500 100 lbs)
Unit variable costs
2.

Depreciation expense
Other factory costs
Total fixed costs

P120,000 per month


200,000
P320,000 per month

3.

300 tons
Variable costs
(No. of tons x 100 x P28)
Fixed costs
Total costs

4.

P20 / lb.
2
1
5
P28 / lb.

Unit costs
[(Total cost / No. of
tons)/100 lbs]

400 tons

500 tons

1,120,000 P
320,000
1,440,000 P

1,400,000
320,000
1,720,000

840,000 P
320,000
P 1,160,000 P

P 38.67 / lb P 36 / lb

[Problem 6]
Cost Item
a
b
c
d
e
f
g
h
I

Direct (D) or
Indirect(I)
D
I
I
D
I
I
I
D
I

Variable (V)
or Fixed (F)
V
F
F
V
F
V
F
F
F

[Problem 7]
Cost Item

Direct (D) or

Variable (V)

P 34.40 / lb

Indirect(I)
D
D
D
D
I
D
D
D
D
D
D
D
I
I

a
b
c
d
e
f
g
h
I
j
k
l
m
n

[Problem 8]
1a.
VC Ratio

or Fixed (F)
V
V
F
F
F
V
F
F
F
V
F
F
F
F

(P26,400,000 P20,000,000)
(P44,000,000 P28,000 000)

P6,400,000
P16,000,000

40%

2.

3.
4.

Total costs and expenses


Variable costs (40% x sales)
Fixed costs
P8,800,000
BEP (pesos) =
60%

2002
P 20,000,000
(11,200,000)
P
8,800,000

Contribution margin (P50 million x 60%)


Less: Fixed costs and expenses
Operating income

[Problem 9]
a.
Cost
Item
1.
2.
3.
4.
5.
6.
7.
8.

Graph
6
11
1
4
5
10
3
7

2003
P 26,400,000
(17,600,000)
P
8,800,000
P14,666,667
P30,000,000
8,800,000
P21,200,000

9.
4.

9
Understanding the behavior of costs would guide managers on how to deal and
control costs in relation to volume of production. This could greatly help in the
planning and controlling activities resulting to better business results.

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