Saint Louis College

City of San Fernando, La Union

COLLEGE OF COMMERCE, SECRETARIAL, AND ACCOUNTANCY
COST ACCOUNTING (ACCTG 4)
2nd Departmental Quiz / FIRST SEMESTER, AY23-24

Date: September 23, 2023 (Saturday); PM session

I. MULTIPLE CHOICE. Direction: Choose the letter corresponding to

the best answer for each of the questions provided below. This
quiz is good for two (2) hours. CAPITALIZE your answer. ERASURES
MEANS WRONG! Good luck!

1. Janet is the purchasing agent at Frames Manufacturing. Her duties

include vendor selection and ordering materials. Due to a recent economic
downturn and resulting cut backs, Janet has been assigned the additional
duty of preparing receiving reports after comparing the goods received
to the purchase order. This is an example of:
A. unlimited access to materials.
B. independence of assigned functions.
C. misappropriation of assets.
D. a lack of segregation of duties.

2. Marley Company hired a consultant to help improve its operations. The

consultant’s report stated that Marley’s inventory levels are excessive
and cited several negative consequences to Marley as a result. Which of
the following consequences was not cited in the report?
A. Possible other uses for working capital now tied up in inventory
B. Production stoppages due to parts not being available
C. Higher property taxes and insurance costs
D. Large quantities of obsolete materials

3. Order costs would include all of the following except:

A. Receiving clerk’s wages.
B. Storeroom keeper’s wages.
C. Purchasing department’s telephone bill.
D. Transportation in.

4. Arwen 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 Arwen's total annual 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?
A. Higher total order cost and lower total carrying cost
B. Lower total order cost and higher total carrying cost
C. Higher total order cost and higher total carrying cost
D. Lower total order cost and lower total carrying cost

5. Listed below are steps of purchasing and receiving materials:

1. The receiving clerk prepares a receiving report.
2. Purchase requisitions are prepared to notify the purchasing
agent that additional materials are needed.
3. The purchase of merchandise is recorded by the accounting
department.
4. The purchasing agent completes a purchase order.

In which order would these events typically happen?

A. 4, 2, 3, 1
B. 2, 4, 3, 1
C. 2, 4, 1, 3
D. 4, 2, 1, 3

6. If a company receives a larger quantity of goods than had been ordered

and keeps the excess for future use, a(n)______________ is prepared to
notify the vendor of the amount of increase to accounts payable in the
invoice.
A. credit memorandum
B. return shipping order
C. debit memorandum
D. additional purchase order
 Saint Louis College
City of San Fernando, La Union
COLLEGE OF COMMERCE, SECRETARIAL, AND ACCOUNTANCY
7. Listed below are steps of procuring materials for production:
1. The receiving clerk checks the quantity and quality of incoming
materials.
2. The purchasing agent issue the purchase order to the vendor.
3. The production floor supervisor issues a materials requisition.
4. The storeroom clerk issues a purchase requisition.

In which order would these events typically happen?

A. 3, 2, 4, 1
B. 3, 4, 2, 1
C. 2, 1, 3, 4
D. 4, 2, 1, 3

8. An inventory control technique that reviews quantities on hand

periodically and orders sufficient quantities to bring inventory up to
a desired level expressed as a number of days' or weeks' supply is the:
A. two-bin method
B. ABC inventory control method
C. Order cycling method
D. Min-Max method
E. Automatic Order Point system

9. The use of quantitative models can be modified to improve the

management of inventory by:
A. including only fixed costs in the EOQ analysis
B. employing a minimum safety stock level because delivery time and
inventory usage rates may vary
C. purchasing inventory only once a year to save on ordering cost
D. purchasing inventory monthly to save on carrying cost
E. eliminating semi variable costs from any consideration in the EOQ
analysis because of the difficulty of estimating those costs.

10. If the amount of materials on hand at the end of the period is less
than the control account balance, the control account balance should be
decreased by the following entry:
A. Debit - Work in Process; Credit – Materials
B. Debit – Materials; Credit - Factory Overhead
C. Debit – Materials; Credit - Work in Process
D. Debit - Factory Overhead; Credit - Materials

11. Once the amounts of the service department allocations have been
determined, a journal entry should be prepared to record the
distributions, the result of which is:
A. debit balances in the Factory Overhead accounts of the production
departments for which the total agrees to the total amount of
factory overhead incurred.
B. credit balances in the Factory Overhead accounts of the production
departments for which the total agrees to the total amount of
factory overhead incurred.
C. debit balances in the Factory Overhead accounts of the service
departments for which the total agrees to the total amount of
factory overhead incurred.
D. credit balances in the Factory Overhead accounts of the service
departments for which the total agrees to the total amount of
factory overhead incurred.

12. Which of the following statements about using the direct labor hour
method of applying factory overhead to production is false?

A. It may not be as accurate as the direct labor cost method if factory

overhead primarily consists of items more closely tied to employee
wages, such as benefits.
B. The application base could be substantially smaller than when
direct labor cost is used.
C. It is the most appropriate method for a highly automated
department.
 Saint Louis College
City of San Fernando, La Union
COLLEGE OF COMMERCE, SECRETARIAL, AND ACCOUNTANCY
D. The amount of factory overhead applied is not affected by the mix
of labor rates.

13. Spencer Company had overapplied factory overhead of $5,000 last year.
Which of the following statements is not true?
A. A higher level of production may have been achieved than budgeted
for.
B. The Work in Process account was overcharged for the costs of factory
overhead incurred during the period.
C. The actual factory overhead expenses may have been less than
budgeted for the operating level achieved.
D. Assuming the amount is not material enough to distort net income,
Cost of Goods Sold should be increased by this amount.

14. If over- or underapplied factory overhead would materially distort

net income if the entire amount was charged to Cost of Goods Sold, it
should be:
A. Carried forward in the overhead control account from year to year.
B. Eliminated by changing the predetermined factory overhead rate in
subsequent years.
C. Apportioned among the work in process inventory, the finished goods
inventory, and the cost of goods sold.
D. Treated as a special gain or loss occurring during the year.

15. Cooper Company had overapplied factory overhead of $2,000 last year.
Assuming the amount was considered small enough not to materially distort
net income, the entries needed to close factory overhead are:

A. Factory Overhead 2,000

Applied Factory Overhead 2,000

Applied Factory Overhead 2,000

Cost of Goods Sold 2,000

B. Factory Overhead 2,000

Under- and Overapplied
Factory Overhead 2,000

Cost of Goods Sold 2,000

Under- and Overapplied
Factory Overhead 2,000

C. Factory Overhead 2,000

Under- and Overapplied
Factory Overhead 2,000

Under- and Overapplied Factory

Overhead 2,000
Cost of Goods Sold 2,000

D. Factory Overhead 2,000

Applied Factory Overhead 2,000

Applied Factory Overhead 2,000

Cost of Goods Sold 2,000

16. Which of the following remuneration methods is most likely to

stabilize an employer's labor cost:
A. Straight piecework
B. Measured day work
C. Premium bonus scheme
D. Group bonus scheme

17. Labor turnover rate is correctly defined as:

A. The number of employees who successfully completed the required
job training program
B. The degree of mobility of employees from one department to another
C. The number of employees recruited each week
 Saint Louis College
City of San Fernando, La Union
COLLEGE OF COMMERCE, SECRETARIAL, AND ACCOUNTANCY
D. The total number of employees replaced divided by the average
number of employees on the payroll

18. Overtime premium pay is correctly defined as:

A. The bonus paid to skilled workers
B. The higher payment received during overtime hours due to increased
rates of pay
C. The payment for all hours in excess of the basic working week
D. A premium paid to workers to compensate for fatigue

19. Which of the following is the most relevant use of the clock card:
A. to measure employee efficiency
B. to facilitate payment for time spent on the work premises
C. to allow labor time to be charged to the individual job
D. to allow calculation of bonus payment

20. Which of the following is usually prepared daily by employees for

each job worked on:
A. Labor job ticket
B. Punch card
C. Time card
D. Cost control card

II. PROBLEM SOLVING. Direction: Read carefully the requirements. Please

show your COMPLETE SOLUTIONS. NO SOLUTIONS, NO POINT WILL BE GIVEN.
DOUBLE RULE and encircle your Final Answer. (total of 40 points)

1. Warmer Co. uses 6,000 units of material per year at a cost of $4

per unit. Carrying costs are estimated to be $1.125 per unit per
year, and order costs amount to $60 per order. As an incentive to
its customers, Warner will extend quantity discounts according to
the following schedule:
Minimum Order List Price Discount Net Price
500 Php 4.00 2% Php 3.92
1,000 4.00 4% 3.84
2,000 4.00 6% 3.76

Required:
(1)Determine the economic order quantity (ignoring quantity
discounts) and the total annual order cost, carrying cost, and
materials costs at EOQ (considering quantity discounts). (2points)
(2)Compute the annual order cost, carrying cost, materials cost,
and total cost at each discount level. (Round to the nearest
peso.)(2points)
(3)Identify the order size, choosing from one of the three discount
levels, that will minimize the total cost. (2points)

2. The White Horse Company predicts that 3,200 units of material will
be used during the year. The expected daily usage is 15 units,
there is an expected lead time of 10 days, and there is a safety
stock of 200 units. The material is expected to cost Php4 per unit.
It is estimated that it will cost Php25 to place each order. The
annual carrying cost is Php1 per unit. (3points)
A. Compute the order point.
B. Determine the most economical order quantity by use of the formula
C. Compute the total cost of ordering and carrying at the EOQ point.

3. Darlington Company has developed the following data to assist in

controlling one of its inventory items:
Economic order quantity.................................1,000 liters
Average daily use ......................................100 liters
Maximum daily use ......................................120 liters
Minimum daily use ......................................75 liters
Working days per year ......................................250 days
Safety Stock ......................................140 liters
Cost of carrying inventory ...............Php 1.00 per liter per year
Lead time ......................................7 working days
 Saint Louis College
City of San Fernando, La Union
COLLEGE OF COMMERCE, SECRETARIAL, AND ACCOUNTANCY
Required: Compute the following: (5points)
A. Order point
B. Average inventory
C. Maximum inventory assuming normal lead time and usage
D. Absolute maximum inventory
E. Cost of placing one order

4. John-john’s Inc. would like to determine the safety stock to

maintain for a product so that the lowest combination of stockout
cost and carrying cost would result. Each stockout will cost $100;
the carrying cost for each safety stock unit will be Php2; the
product will be ordered ten times a year. The following
probabilities of running out of stock during an order period are
associated with various safety stock levels:
Safety Stock Level Probability of Stockout
25 units 50%
50 25%
75 10%
100 5%

Required: Determine the combined stockout and safety stock carrying cost
associated with each level and the recommended level of safety stock.
(3points)

5. Deanne Corporation has two service departments, Power and

Maintenance, and two production departments, Painting and
Polishing. The following data have been estimated for next year’s
operations:
Department: Direct Charges Kilowatt Hours Used Square Footage
Power Php450,000 20,000 10,000
Maintenance 120,000 50,000 5,000
Painting 235,000 100,000 30,000
Polishing 265,000 150,000 20,000

Requirements:
(1)Distribute the service department costs using the sequential
distribution method. Distribute the Power Department first. (2points)
(2)Prepare the journal entries to distribute the costs of the service
departments to the production departments given the results of your
calculations. (3points)

6. Perry-Perry Company has two service departments, Maintenance and

Human Resources, and two production departments, Machining and
Assembly. The following data have been estimated for next year’s
operations:
Department: Direct Charges Square Footage Labor Hours
Human Resources Php135,000 -- --
Maintenance 100,000 -- 5,000
Machining 275,000 2,000 20,000
Assembly 225,000 3,000 25,000

The Human Resources Department services all departments.

Requirements:
(1)Distribute the service department costs using the direct distribution
method. (2points)
(2)Distribute the service department costs using the sequential
distribution method with the department servicing the greatest number
of other departments being distributed first. (2points)
(3)Using the results from the direct distribution method, calculate the
predetermined factory overhead rate for the machining department using
labor hours as the basis. (2points)

7. The finance officer has asked you to examine different distribution

methods for applying factory overhead to the various production
orders that are processed during a year.
 Saint Louis College
City of San Fernando, La Union
COLLEGE OF COMMERCE, SECRETARIAL, AND ACCOUNTANCY
The following information was taken from the annual budget:

Direct labor hours 84,000

Machine hours 120,000

Manufacturing costs:
Direct labor Php525,000
Direct materials 180,000
Indirect labor 75,000
Electric power 48,000
Payroll taxes 12,600
Machine maintenance and repair 9,200
Factory supplies 16,000
Factory heat and light 14,000
Depreciation, taxes, and insurance:
Factory buildings 135,000
Machinery 320,200
Php1,335,000

Actual results for the year follow:

Direct labor hours 85,000
Machine hours 110,000

Manufacturing costs:
Direct labor Php 540,000
Direct material 200,000
Factory overhead 625,000
Php 1,365,000

Required:
a. Determine the following factory overhead application rates under
each of the following methods:(6points)
(1) Direct labor cost
(2) Direct labor hours
(3) Machine hours

b. Determine the under- or overapplied factory overhead under each

of the following methods:(6points)
(1) Direct labor cost
(2) Direct labor hours
(3) Machine hours

-END OF 2nd Quiz-

Prepared by:
(sgd.)
JOHN WESLEY F. RAPANUT, CPA

(sgd.)
DEOMARK B. ARCEGA, CPA, MBA