Problem 1

Vertical Company uses a job-order costing system and the following information is available from its records. The
company has three jobs in process: #1, #2, and #3.

Raw material used P260,000

Direct labor per hour P19.00
Overhead applied based on direct labor cost 125%

Of the raw materials used, total of 85% were traceable to the specific jobs (Job #1: 25%; Job #2: 30%;
Job #3: 30%) and the balance of the requisitions was considered indirect. Direct labor hours per job are 2,800; 3,300;
and 4,000; respectively. Indirect labor is P90,000. Other actual overhead costs totaled
P100,000.
1. Assuming all of the jobs were completed and the company used actual costing, what is the total cost of goods
manufactured?
Answer: 641,900
2. Assuming only Jobs No. 2 and 3 were completed and sold, what is the cost of goods sold at year end?
Answer: 468,075
3. What is the under (DR) or over (CR) applied overhead?
Answer: 10,875 CR

Problem 1 - Solution: RMInv 221,000

Question #1 Payroll 191,900
Total raw material used 260,000 MOH 229,000
X 85%
Direct materials 221,000 FG 641,900
WIP 641,900
WIP 221,000
RMInv 221,000 Direct materials 221,000
Direct Labor 191,900
Total raw material used 260,000 Manufacturing OH 229,000
X 15% Total manufacturing cost 641,900
Indirect materials 39,000
Indirect Labor 90,000
Other actual OH 100,000 WIP, beg 0
Manufacturing OH 229,000 Total manufacturing cost 641,900
WIP, end ( 0)
Total direct labor hours Cost of goods manufactured 641,900
(2,800 + 3,300 + 4,000) 10,100
X 19.00
Direct labor 191,900

WIP 191,900 Question #2

Payroll 191,900 Beginning inventory cost
(DM, DL, MOH) xx
To record the actual OH: Direct materials xx
MOH 229,000 Direct Labor xx
Various Accounts 229,000 Manufacturing OH xx
Total cost of a specific job xxx
To apply the actual OH to production:
WIP 229,000
MOH 229,000

WIP 641,900
 X 19.00
Direct labor 191,900
X 125%
OH Applied 239,875

Manufacturing Overhead Control .

229,000 239,875 (Over-applied)

WIP, end
DM Job #2: (260,000 x 30%) = 78,000
DM Job #3: (260,000 x 30%) = 78,000
10,875 CR
DL Job #2: (3,300 x 19) = 62,700
DL Job #3: (4,000 x 19) = 76,000 Assumption: We will use the situation in question #2.

OH Applied, Job #2: (62,700 x 125%) = 78,375 IMMATERIAL:

OH Applied, Job #3: (76,000 x 125%) = 95,000 Cost of goods sold 468,075
Over-applied OH (10,875)
DM Job #1: (260,000 x 25%) = 65,000 Adjusted cost of goods sold 457,200
DL Job #1: (2,800 x 19) = 53,200
OH Applied, Job #1: (53,200 x 125%) = 66,500 MATERIAL:
WIP, end 184,700
Question #3 FG, end 0
Total raw material used 260,000 Cost of goods sold 468,075
X 15% Total 652,775
Indirect materials 39,000
Indirect Labor 90,000 Cost of goods sold 468,075
Other actual OH 100,000 Over-applied OH
Manufacturing OH 229,000 (10,875 x (468,075/652,775)) (7,798)
Adjusted cost of goods sold 460,277
Total direct labor hours
(2,800 + 3,300 + 4,000) 10,100

Problem 2
Mercedes Manufacturing was a company engaging in manufacturing car parts. During this year, Mercedes
Manufacturing made 30,000 units of clutch kits. However after further inspection, it was determined that 4% of the
units made were spoiled. These spoiled units can be sold at P150 each.

The following were the total cost of the 30,000 clutch kits:
Direct materials P2,760,000
Direct labor (P140 per direct labor hour) P840,000
Applied overhead
(300 per direct labor hour inclusive of P50 allowance for spoiled work) P1,800,000
1. Assume that the spoiled goods were due to internal failure, what is the cost transferred to finish goods at the end
of the year?
Answer: 5,184,000
2. Assume that the spoiled goods were due to exacting specifications, what is the cost per good unit at the end of the
year?
Answer: 170.83

Problem 2 - Solution: Spoiled goods (28,800 x 180) = 5,184,000

Question #1 (Due to internal failure)
Direct Materials 2,760,000 Question #2 (Due to exacting specifications)
Direct Labor (6,000 DLHrs) 840,000 Direct Materials 2,760,000
MOH (Include P50 allowance) 1,800,000 Direct Labor (6,000 DLHrs) 840,000
Total initial Cost 5,400,000 MOH (6,000 x 250) 1,500,000
Divided by (units) 30,000 Total initial Cost 5,100,000
Initial cost per unit 180 Divided by (units) 30,000
Initial cost per unit 170
WIP 5,400,000 WIP 5,100,000
RMI 2,760,000 RMI 2,760,000
Payroll 840,000 Payroll 840,000
MOH 1,800,000 MOH 1,500,000

NRV of spoiled goods NRV of spoiled goods

(30,000 x 4%) x 150 180,000 (30,000 x 4%) x 150 180,000
Cost of spoiled goods Cost of spoiled goods
(30,000 x 4%) x 180 (216,000) (30,000 x 4%) x 170 (204,000)
Loss (36,000) Loss (24,000)

Total initial cost 5,400,000 Total initial cost 5,100,000

Cost of spoiled (216,000) NRV of spoiled goods (180,000)
Total cost transferred to FG 5,184,000 Total cost transferred to FG 4,920,000
Good units (30,000 – 1,200) ÷ 28,800 Good units (30,000 – 1,200) ÷ 28,800
Cost per good unit 180 Cost per good unit 170.83

Spoiled goods inventory 180,000 Spoiled goods inventory 180,000

MOH 36,000 WIP 180,000
WIP 216,000
FG 4,920,000
FG 5,184,000 WIP 4,920,000
WIP 5,184,000
Total Initial Cost
Total Initial Cost 5,100,000
5,400,000

Cost of good units Cost of spoiled

Cost of good units Cost of spoiled 4,896,000 204,000
5,184,000 216,000

NRV Loss
NRV Loss 180,000 24,000
180,000 36,000
Cost of good units: Initial cost of good units:
(28,800 x 170) = 4,896,000 Cost of goods per unit 4,920,000
Loss + 24,000

Problem 3
KW Inc. manufactured coil over springs for cars. During this year, KW Inc. manufactured 200 units
coil over springs. After final inspection, it was determined that 15 units were defective. The cost per
unit to rework the defective units were the following: P100 for direct materials, P160 for direct labor
and the appropriate factory overhead rate.

The following were the unit cost for the 200 coil over springs:

Direct materials P800

Direct labor P350
Applied overhead 160% of direct labor cost
(150% in case defective units were charged to specific order)

1. Assume that the defective goods were charged to all jobs, what is the cost transferred to finish goods at the end of
the year?
Answer: 342,000
2. Assume that the defective goods were due to specific job, what is the unit cost of each good unit at the end of the
year?
Answer: 1,712.50

Problem 3 - Solution: Defective goods MOH 112,000

Question #1 (Charge to all jobs)
Direct Materials(800 x 200) 160,000 MOH 7,740
Direct Labor (350 x 200) 70,000 RMI 1,500
MOH (70,000 x 160%) 112,000 Payroll 2,400
Total initial Cost 342,000 MOH 3,840
Divided by (units) 200
Initial cost per unit 1,710

WIP 342,000
RMI 160,000
Payroll 70,000
MOH 112,000 Question #2 (Due to specific job)
Direct Materials(800 x 200) 160,000
Direct Materials(100 x 15) 1,500 Direct Labor (350 x 200) 70,000
Direct Labor (160 x 15) 2,400 MOH (70,000 x 150%) 105,000
MOH (2,400 x 160%) 3,840 Total initial Cost 335,000
Rework Cost 7,740 Divided by (units) 200
Initial cost per unit 1,675
Total initial cost 342,000
Good units ÷ 200 WIP 335,000
Cost per good unit 1,710 RMI 160,000
Payroll 70,000
WIP 342,000 MOH 105,000
RMI 160,000
Payroll 70,000 Direct Materials(100 x 15) 1,500
Direct Labor (160 x 15) 2,400 RMI 160,000
MOH (2,400 x 150%) 3,600 Payroll 70,000
Rework Cost 7,500 MOH 105,000

Total initial cost 335,000 WIP 7,500

Rework cost 7,500 RMI 1,500
Total cost transferred to FG 342,500 Payroll 2,400
Good units ÷ 200 MOH 3,600
Cost per good unit 1,712.50
FG 342,500
WIP 335,000 WIP 342,500

Problem 4
RWB was a company specializing in aftermarket bodykits for cars. During the year RWB produced 1,500 units of body
kits. After final inspection, it was determined that 150 units were spoiled and 50 units were defective, but can be
reworked. The following were the cost of the 1,500 units of body kits produced:

Direct materials P4,650,000

Direct labor P1,200,000
Applied overhead (based on direct labor cost) P2,400,000

The spoiled units can be sold for P1,200 each and the unit cost for reworking each defective unit were P1,200 for direct
materials, P500 for direct labor and the appropriate applied overhead.
1. Assume that the spoiled and defective goods were charged to all jobs, what is the unit cost of each good unit
at the end of the year?
Answer: 5,500.00
2. Assume that the spoiled and defective goods were exacting specification, what is the unit cost of each good
unit at the end of the year?
Answer: 6,077.78

Problem 3 - Solution: Spoiled and Defective goods

Question #1 (Charge to all jobs) NRV of spoiled goods
Direct Materials 4,650,000 (1,200 x 150) 180,000
Direct Labor 1,200,000 Cost of spoiled goods
MOH 2,400,000 (5,500 x 150) (825,000)
Total initial Cost 8,250,000 Loss (645,000)
Divided by (units) 1,500
Initial cost per unit 5,500 Direct Materials(1,200 x 50) 60,000
Direct Labor (500 x 50) 25,000
WIP 8,250,000 MOH (25,000 x 200%) 50,000
RMI 4,650,000 Rework Cost 135,000
Payroll 1,200,000
MOH 2,400,000 Predetermined OH Rate:
(2,400,000/1,200,000) = 200% of DL Cost (2,400,000/1,200,000) = 200% of DL Cost

Total initial cost 8,250,000

Cost of spoiled (825,000)
Total cost transferred to FG 7,425,000
Good units (1,500 – 150) ÷ 1,350
Cost per good unit 5,500

Journal Entry for Spoiled goods:

WIP 8,250,000
RMI 4,650,000
Payroll 1,200,000
MOH 2,400,000

Spoiled goods inventory 180,000

MOH 645,000
WIP 825,000

Journal Entry for Rework Cost:

MOH 135,000
RMI 60,000
Payroll 25,000
MOH 50,000 Total initial cost 8,250,000
NRV of spoiled goods (180,000)
FG 7,425,000 Rework Cost 135,000
WIP 7,425,000 Total cost transferred to FG 8,205,000
Good units (1,500 – 150) ÷ 1,350
Cost per good unit 6,077.78
Question #2 (Due to exacting specification)
Direct Materials 4,650,000 Journal Entry for Spoiled goods:
Direct Labor 1,200,000 WIP 8,250,000
MOH 2,400,000 RMI 4,650,000
Total initial Cost 8,250,000 Payroll 1,200,000
Divided by (units) 1,500 MOH 2,400,000
Initial cost per unit 5,500
Spoiled goods inventory 180,000
WIP 8,250,000 WIP 180,000
RMI 4,650,000
Payroll 1,200,000 Journal Entry for Rework Cost:
MOH 2,400,000 WIP 135,000
RMI 60,000
NRV of spoiled goods Payroll 25,000
(1,200 x 150) 180,000 MOH 50,000
Cost of spoiled goods
(5,500 x 150) (825,000) FG 8,205,000
Loss (645,000) WIP 8,205,000

Direct Materials(1,200 x 50) 60,000

Direct Labor (500 x 50) 25,000
MOH (25,000 x 200%) 50,000
Rework Cost 135,000

Predetermined OH Rate: