ACCOUNTING FOR MATERIALS AND LABOR (ADAPTED)

I. True or False – 10 points.

1. Scrap is usually divided between normal and abnormal scrap.

2. Overtime premium is normally considered as a component of direct labor.
3. If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hours of idle time would be
considered a component of direct labor.
4. If the accountant chooses to treat the revenue from scrap as a reduction in manufacturing costs, rather
than as “Other Income”, Factory overhead may be credited if the scrap can be readily identified with a
specific job.
5. Material requisition is prepared by factory personnel authorized to withdraw materials from the
storeroom.
6. Spoilage costs charged to Factor Overhead are allocated among all jobs in production. When spoilage
is attributable to a specific job, however, the entire cost of spoilage is reflected in the cost of that job.
7. When normal spoilage occurs because of the specifications of a particular job, that job bears the cost
of the spoilage minus the disposal value of the spoilage.
8. All things being equal, a firm that uses indirect charging method in accounting for freight-in would
have a higher "Materials" amount compared to another firm that uses direct charging method.
9. The storeroom keeper is responsible for supervising the receipt of income shipments. All income
materials must be checked as to quantity and quality and sometimes as to price.
10. Merchandising operations usually produce some imperfect units that cannot be sold as regular items.
The control over imperfect items and operations that waste materials are important elements of
inventory control.

II. Multiple Choice – 10 points.

1. These are leftovers from the production process that cannot be put back into production for the same
purpose but may be used for a different purpose or production process or which may be sold to an
outsider for a nominal amount.
A. Spoiled units
B. Defective units
C. Scrap material
D. Waste material

2. What kind of method for spoiled materials is used if the effect of this method will increase the unit cost
of the remaining perfect finished article in the job?
A. Charged to specific job
B. Charge to all production
C. Both A and B
D. None of the above

3. A method of cash discount in which the discount is only recognized when the account is paid within
the discount period.
A. When taken method
B. When not taken method
C. When offered method
D. None of the above

4. The material requisition should indicate the following except:

A. Quantity.
B. Material number.
C. Job number.
D. Purchase order number.

5. All of the following are correct statement for Purchase Order except for:
A. Is a written request to a supplier for specified goods at an agreed upon price.
B. It also stipulates the terms of delivery and terms of payment.
C. Usually sent to inform the purchasing department of a need for materials or supplies.
D. It the supplier’s authorization to deliver goods and submit a bill.

6. It is a cost of non-productive hours of direct labor caused by lack of work, waiting for materials delays
from scheduling.
A. Make-up pays
B. Waiting time or idle time
C. Overtime premium
D. Shift premium

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ACCOUNTING FOR MATERIALS AND LABOR (ADAPTED)
7. All of the following are correct statement for Shift Premium except for:
A. Extra pay to work during less desirable evening shift or night shift.
B. Should be charge to factory overhead control account rather than work in process.
C. Both A and B
D. None of the above

8. The following are deducted from the gross pay when computing for the employee’s taxable income
A. Social Security System
B. Philippine Health Insurance Corporation
C. Home Development Mutual Fund
D. All of the above

9. Employers’ contribution includes:

A. SSS, Philhealth and HDMF
B. SSS, Philhealth, HDMF and withholding taxes
C. Union dues and loans
D. Both B and C

10. The amount of employee tax to be withheld each period depends upon the following:
A. Amount of employee’s earnings
B. Frequency of the payroll
C. Both A and B
D. Neither A nor B

III. Problem Solving – 30 points.

PROBLEM1
Goods totaling P50,000 were purchased February 2 with terms of 2/10, n/30. Returns of P10,000 were made
on February 10.

1. What discounts, if any, can be availed of if the invoice was paid on February 12 using the gross method
(taken)?

PROBLEM2
San Angelo Corporation uses a job order costing system for clients related to custom-manufactured pulley
systems. It is a wheel used to transmit power by means of a band, belt, cord, rope, or chain passing over its
rim. Elmore Mechanical recently ordered 20,000 pulleys, and the job was assigned #BSA31. Information
for Job #BSA31 revealed the following:

Direct material P40,800

Direct labor 49,200
Manufacturing overhead (applied at 150% of DL cost) 73,800

Final inspection of the pulleys revealed that 230 were defective. In correcting the defects, an additional
P2,500 for direct material, P9,000 for direct labor costs plus overhead rate at predetermined rate were
incurred. After the defects were corrected, the pulleys were included with the other goods units and shipped
to the customers.

2. How much of the Loss on Abnormal Rework should be recorded assuming that all rework is abnormal.

PROBLEM3
Beauty Company manufactures picture frames of all sizes and shapes and uses a job order costing system.
There is always some spoilage in each production run. The following costs relate to the current run:

Estimated overhead (inclusive of spoilage) P160,000

Spoilage (estimated) P25,000
Sales value of spoiled frames P11,500
Labor hours 100,000

The actual cost of a spoiled picture frame is P7.00. During the year 170 frames are considered spoiled. Each
spoiled frame can be sold for P4. The spoilage is considered a part of all jobs.

3. How much is the total amount debited to spoiled goods?

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ACCOUNTING FOR MATERIALS AND LABOR (ADAPTED)
PROBLEM4
Tara Company’s Job 1 for the manufacture of 2,200 coats, which was completed during August at the unit
costs presented below. Final inspection of Job 1 disclosed 200 spoiled coats that were sold to a jobber for
P6,000.

Direct materials P20

Direct labor 18
FOH (includes an allowance of P1 for spoiled work) 18
P56

Required:
4. Assuming that spoilage loss is charged to all production during August. What would be the unit cost of
the good coats produced on Job 1?
5. Assumed instead that the spoilage is attributable to the exacting specifications of Job 1 and is charged
to this specific job. What would be the unit cost of the good coats produced on Job 1?

PROBLEM5
Mark Company purchased raw materials to be used in production on January 3, 2019. The cost accountant
used the relative weight method to allocate the freight in. The freight in charge on this purchased weighing
20,000 units (X – 25%, Y – 35% and Z – 40%) was P5,000 and provided the following information:

Cost per
Product Invoice Price Total cost
unit
X P111,250 ? ?
Y ? ? P20.00
Z ? ? P19.75

Required:
6. Calculate the per unit cost of product X.
7. How much is the total cost of product Y?
8. How much is the invoice price of product Z?

PROBLEM6
MITCHEL Manufacturing Company pays employees every two weeks. Monday, April 1, is the beginning
of a new payroll period. All five employees’ earnings totaled P48,840. The 70% are for factory payroll
employees (70% considered direct labor while 30% are indirect) and the remaining 30% are for selling and
administrative payroll staff. All employees are subject to mandatory deductions.

9. How much is chargeable to work in process account?

PROBLEM6
The pay stub of Mr. Roque, employee No. 201 who works on the production line, showed the following
information for a one month pay period:

Basic Pay P?
Overtime Pay P?
Total gross earnings P31,500
Income tax withheld P?
SSS premiums withheld P1,305.00
PHIC withheld P648.00
HDMF premiums withheld P100.00
Union Dues P150.00
Total deductions P?

Mr. Roque is paid P180 per hour for regular time and received an additional rate of one-half (50%) for any
hour in excess of 160 hours worked. Mr. Roque worked a total of 170 hours during the month.

Required:
10. Calculate the overtime premium pay.
11. Compute Mr. Roque’s taxable income.
12. What is the total amount chargeable to work in process account?

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ACCOUNTING FOR MATERIALS AND LABOR (ADAPTED)
PROBLEM7
Alpha Company had the following employees and the payroll data made from time ticket for the month
ended June 30 pertaining to Job#10:

Employees Overtime Basic

Name hours Pay
A1 8 P28,000
B2 20 P18,400
C3 32 P17,920

Employee Union
SSS PHIC HDMF
Name Dues
A1 1,260.00 630.00 100.00 150.00
B2 832.50 414.00 100.00 150.00
C3 810.00 403.20 100.00 150.00

All employees completed the 160 hours per month plus overtime hours. All employees received an
additional rate of one-half (50%) for overtime hours based on the regular rate.

Required:
13. Calculate the total hours worked by all employees.
14. How much is the total gross pay of all employees?
15. How much is the taxable income of employee B2?