PCOA13 Module 1 Illustration Problems PDF

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Illustration ProblemsProblem 1:Y Y Y Corporation inventory balances on January 1, 2019 were as follows:Raw Materials ₱35, Work in Process Inventory ₱52, Finished Goods Inventory ₱120,Du ring the year, the follow ing transac tions w ere c om pleted : 2aw m aterials w ere pu rc hased on ac c ou nt, ₱6...

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Illustration Problems Problem 1: YYY Corporation inventory balances on January 1, 2019 were as follows: Raw Materials Work in Process Inventory Finished Goods Inventory

₱35,000 ₱52,000 ₱120,000

During the year, the following transactions were completed: 1. Raw materials were purchased on account, ₱612,000. 2. Raw materials were issued from the storeroom for use in production, ₱600,000 (80% direct and 20% indirect). 3. Salaries and wages of factory employees were incurred as follows: ₱850,000 direct labor; indirect labor ₱350,000. The deductions were as follows: SSS premium ₱25,000, HDMF contribution ₱10,000, PhilHealth contribution ₱8,000 and withholding taxes of ₱50,000. 4. Selling and administrative salaries, ₱450,000. The deductions were as follows: SSS premium ₱12,000, HDMF contribution ₱8,000, PhilHealth contribution ₱5,000 and withholding taxes of ₱22,000. 5. Total salaries and wages paid amounted to ₱1,510,000 6. Utility costs were incurred in the factory, ₱145,000. 7. Advertising costs paid, ₱112,000. 8. Depreciation was recorded ₱230,000 (90% related to factory assets and 10% related to selling and administrative expenses). 9. Factory overhead was applied to production at the rate of 95% of direct labor cost. 10. Goods completed amounting to ₱2,155,000 were transferred to the finished goods warehouse. 11. Sales for the year totaled ₱3,100,000 and were all on account. The total cost to manufacture these goods was ₱2,230,000. 12. Collection of Accounts Receivable amounting to ₱2,800,000.

Required: 1. Prepare the journal entry on each transaction. 2. Compute the overapplied or underapplied factory overhead and provide the journal entry to close the overapplied or underapplied factory overhead. 3. Provide the ending balance of the following: a. Raw Materials Inventory b. Work in Process Inventory c. Finished Goods Inventory 4. Prepare the Cost of Goods Sold Statement. Solution 1. 1 Raw Materials Accounts Payable 2

3

4

5

6

7

612,000.00 612,000.00

Work in Process Factory Overhead Raw Materials

480,000.00 120,000.00

Work in Process Factory Overhead SSS Payable HDMF Payable PhilHeath Payable Withholding Tax Payable Salaries and Wages Payable

850,000.00 350,000.00

Salaries and Wages Expense SSS Payable HDMF Payable PhilHeath Payable Withholding Tax Payable Salaries and Wages Payable

450,000.00

Salaries and Wages Payable Cash

600,000.00

25,000.00 10,000.00 8,000.00 50,000.00 1,107,000.00

12,000.00 8,000.00 5,000.00 22,000.00 403,000.00 1,510,000.00 1,510,000.00

Factory Overhead Utility payable

145,000.00

Advertising Expense Cash

112,000.00

145,000.00

112,000.00

8

9

10

11

12

Factory Overhead Depreciation Expense Accumulated Depreciation

207,000.00 23,000.00

Work in Process Factory Overhead

807,500.00

Finished Goods Work in Process

2,155,000.00

Cost of Goods Sold Finished Goods

2,230,000.00

Accounts Receivable Sales

3,100,000.00

Cash Accounts Receivable

2,800,000.00

230,000.00

807,500.00

2,155,000.00

2,230,000.00

3,100,000.00

2,800,000.00

2. Factory Overhead 120,000.00 807,500.00 350,000.00 145,000.00 207,000.00

Cost of Goods Sold Underapplied FOH

14,500.00 14,500.00

14,500.00

3. Raw Materials 600,000.00 35,000.00 612,000.00

47,000.00

Work in Process 52,000.00 2,155,000.00 480,000.00 850,000.00 807,500.00

34,500.00

Finished Goods 120,000.00 2,230,000.00 2,155,000.00

45,000.00

4.

Problem 2 Mr. WWW, controller of YYY Hospital, would like to come up with a cost formula that links emergency department costs to the number of patients admitted during a month. The emergency department’s costs anf number of patients admitted during the past nine months follows: Month April May June July August September October November December

Number of Patients 36 38 34 30 30 22 22 96* 32

Emergency Department Cost 31,200.00 30,400.00 27,400.00 29,200.00 28,600.00 26,400.00 25,600.00 145,000.00 28,000.00

Required: Using the high-low method, determine: 1. The variable cost per unit and annual fixed cost. 2. The department’s estimated cost, if 40 patients are expected to be admitted next month. Solution 1. Highest Activity Lowest Activity

38 Patients; ₱30,400 22 Patients; ₱25,600

Variable Cost per Unit =

Variable Cost per Unit

Total Fixed Cost

₱30,400 - ₱25,600 38 - 22 4800 16 = ₱300

= ₱30,400 - (₱300*38) = 30,400 – 11,400 = ₱19,000 or

Total Fixed Cost

2. X = 40 patients y = a + bX y = 19,000 + 300X y

= 19,000 + (300*40) = 19,000+ 12,000 = ₱31,000

= ₱25,600 - (₱300*22) = 25,600 – 6,600 = ₱19,000

Problem 3 FFF manufactures and sells a single product. A partially completed schedule of the company’s total and per unit costs over a relevant range of 60 to 100 units produced each year is given below:

Required: 1. 2. 3. 4.

Compute the schedule by writing the missing amounts. Which 2 specific costs remain constant over the relevant range? Which 2 specific are directly related with production? Which specific cost is inversely related with production?

1. Fixed Costs = ₱600,000 Variable Costs per unit

y = a + bX 60 Units y = ₱600 + (2*60) y = 600 + 120 y = ₱720

= ₱120 / 60 units = ₱2

80 units y = ₱600 + (2*80) y = 600 + 160 y = ₱760

100 units y = ₱600 + (2*100) y = 600 + 200 y = ₱800

2. Total Fixed Costs and Variable Cost per unit. 3. Total Costs and Total Variable Costs. 4. Fixed Cost per unit.

Problem 4 AAA Co. makes shirts that it sells to retailers. The company uses job order costing system in which predetermined overhead rates are used to apply factory overhead cost to jobs. The predetermined rate in the Sewing Department is based on machine hours and in Cutting Department is based on direct labor cost. The following estimate are made at the beginning of the year:

Direct Labor Hours Machine Hours Direct Material Cost Direct Labor Cost Factory Overhead Cost

Sewing 24,000 140,000 1,020,000 260,000 1,204,000

Cutting 120,000 10,000 1,300,000 840,000 1,470,000

Job 101 was started on Feb 1 and completed on Feb 25. The company’s cost records show the following information concerning the job.

Direct Labor Hours Machine Hours Material Used Direct Labor Cost

Sewing 60 220 940 580

Cutting 170 40 664 1,360

At the end of the year, the records of the company show the actual cost and data for all the jobs worked during the year.

Direct Labor Hours Machine Hours Direct Material Cost Direct Labor Cost Factory Overhead Cost

Sewing 20,000 130,000 860,000 216,000 1,140,000

Cutting 124,000 18,000 1,360,000 872,000 1,500,000

Required: 1. Compute the factory overhead rate used in the Sewing and Cutting Department during the year. 2. Compute the total factory overhead cost applied to Job 101. 3. What would be the unit cost of the job 101? 4. How much is the over or under applied factory overhead in each department at the end of the year?

1. Sewing POHR = ₱1,204,000 / 140,000 machine hour POHR = ₱8.6 per machine hour

Cutting POHR = ₱1,470,000 / ₱840,000 POHR = 175% of Direct Labor Cost

2. Sewing Applied FOH = POHR*machine hour Applied FOH = ₱8.6*220 machine hour

Cutting Applied FOH = 175% of Direct labor cost Applied FOH = 175% of ₱1,360

= ₱1,892.00

= ₱2,380.00

3. Material Used Direct Labor Cost FOH

Total Costs

Sewing 940.00 580.00 1,892.00 3,412.00

Cutting 664.00 1,360.00 2,380.00 4,404.00 7,816.00

4. Sewing Cutting Actual Overhead 1,140,000.00 1,500,000.00 Applied Overhead 1,204,000.00 1,470,000.00 (64,000.00) 30,000.00 Overapplied Underapplied...